The Indian government’s sharply scaled-back plans to sell state-run companies have raised uncertainty among analysts around the size and scale of the proposed initial public offering of giant insurer Life Insurance Corporation of India (LIC).
The government has been pulling out all the stops to have the country’s biggest IPO completed by the end of March to help bridge a deficit gap this fiscal year and it had put other privatisation plans on hold to complete this.
In its budget announcement on Tuesday, it more than halved the amount it planned to raise from the privatisation programme in the current fiscal year to 780 billion rupees ($10.43 billion) and also set a more moderate target of 650 billion rupees for the upcoming fiscal year.
It had originally planned to raise 1.75 trillion rupees for the current financial year and the government was aiming to raise as much as 900 billion rupees of this via selling a stake in LIC.
The downward revision “highlights the uncertainty regarding the LIC IPO,” said Suman Chowdhury, chief analytical officer, Acuité Ratings in a note. “It is evident that the government is unlikely to pursue public sector units disinvestment in an aggressive manner over the next 1-2 years.”
Finance Ministry officials, however, warned investors should not assume the revised target points to a smaller-than-expected LIC IPO.
“We should not conjecture on what will be the size of LIC IPO based on that (cut) because (the LIC) valuation is yet to reach a financial conclusion,” said finance ministry official Tuhin Kanta Pandey, at a post-budget press conference.
Finance Minister Nirmala Sitharaman had earlier reiterated that the IPO, widely-anticipated to become India’s largest ever listing, was “in all probability” still going through before the end of the current fiscal year on March 31.
The draft LIC IPO prospectus is expected early this month.
The government has already raised nearly 120 billion rupees via divestments in this financial year however, it has regularly failed to achieve its divestment target in recent years.
Some analysts said that the government could possibly split the LIC IPO process.
“It is possible that they may split the LIC IPO into two parts to ensure there is no major shortfall in one year,” Aditi Nayar, chief economist at rating agency ICRA told Reuters.
($1 = 74.7600 Indian rupees)