Will LIC IPO help burnish transparency at PSUs?

The announcement by Finance Minister Nirmala Sitharaman during the Budget about the disinvestment of Life Insurance Corporation of India has triggered a heated debate in business circles on the valuation of the IPO and the protests by its employees.

According to reports, nearly one lakh employees of Life Insurance Corporation staged an hour-long walk-out against the Government’s decision to sell its stake through an initial public offering.

While these issues have caught media attention, the performance of the PSU stocks that have been disinvested in the last three years has gone unnoticed.

Of the dozen public sector companies that got listed since 2017, only four have managed positive returns. However, the four that did manage this feat are worth mentioning as they returned in excess of 50 per cent.

The star performer among them is IRCTC or the Indian Railway Catering and Tourism Corporation. Against the IPO price of ₹320, it gave a whopping five-fold return of 370 per cent since its listing on October 14, 2019.

The other stocks that gave robust returns are Garden Reach Shipbuilders & Engineers (54 per cent), RITES (70 per cent) and Mishra Dhatu Nigam known as Midani (78 per cent).

However, most other PSU stocks have fallen like ninepins. Investors in HUDCO, whose public issue was subscribed almost 80 times, have lost 35 per cent while Cochin Shipyard, Bharat Dynamics and Hindustan Aeronautics have fallen between 15 and 35 per cent.

Private insurers score

The worst-affected among the PSUs are from the insurance sector. The stock of New India Assurance Company, which hit the market in November 2017, fell off the precipice; against the IPO price of ₹800, the stock is currently ruling at around ₹150.

Similarly, investors in General Insurance Corporation of India are poorer by 70 per cent. The stock is currently ruling at ₹273 against the issue price of ₹912. But private insurance major ICICI Lombard General Insurance’s price has doubled in a little over two years of listing.

Life insurers’ good show

What holds promise for LIC is the performance of life insurers. All the listed companies in this segment have produced handsome returns. ICICI Pru Life Insurance Company, which came out with an IPO in 2017, gave a return of 45 per cent, while HDFC Life Insurance Corporation, at ₹595, has doubled since its listing in 2017. Similarly, SBI Life Insurance is trading in the positive zone at ₹950 against the issue price of ₹700.

The Centre should note that the success of the IPO is not all about getting the issue over-subscribed, but more about the returns that accrue to investors post listing. On that count, most PSU stocks are languishing, mainly because of the IPO pricing and excessive promoter intervention in the business.

“Listing of companies on stock exchanges disciplines a company and provides access to financial markets and unlocks its value.

“It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of an initial public offering,” the Finance Minister had said during her Budget speech.

No aggressive pricing, please

This statement must be followed in letter and spirit. Instead of pricing IPOs aggressively, the Centre should try and leave something on the table for investors. The PSU firm is also accused of poor governance. LIC has been accused of helping out governments in power by supporting equity markets on weak trading days and investing in offers-for-sales or disinvestment offers that other investors find unappealing.

So, it is important for the Centre to sort out the issue of corporate governance, especially at LIC. If its public issue cheers investors, it would become for the Centre to convince them to invest in future disinvestments through OFS.

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