With most of the preparatory work almost over with finalisation of the embedded value (EV) of the Life Insurance Corporation, the insurer will file a draft red herring prospectus (DRHP) by next week for its mega IPO, department of investment and public asset management secretary Tuhin Kanta Pandey told FE.
“As soon as the IRDA approves the EV, it will feed into the DRHP. In the next 7-10 days, DRHP will be there, it could be earlier also,” Pandey said. Thereafter, more intensive activity of finalising anchor investors, roadshows, etc would start, he said.
LIC has already prepared its books of accounts till September 2021 and will finalise the December accounts by February 20. EV is an indicator representing the corporate value of a life insurance company. The DRHP will indicate what will be the size of the LIC IPO and pricing.
In the revised estimate (RE) for FY22, the government has scaled down the disinvestment receipt for the current financial year to Rs 78,000 crore, about 56% lower than the initial estimate of Rs 1.75 lakh crore. Speaking with FE, finance secretary TV Somanathan said that a very conservative estimate of LIC IPO receipt is included in the RE as neither the valuation nor the size of the issue was known at the time of fixing the estimate. Sources indicate that the LIC IPO proceeds will be higher than what has been factored in the disinvestment RE for FY22.
The government could mop up around Rs 1 lakh crore if it dilutes 10% stake in the public-sector insurer, but the size of the issue is yet not clear, as market sentiments could decide it. The government has collected about Rs 12,030 crore of the FY22 target of Rs 1.75 lakh crore from disinvestment so far in the year.
Private valuation firm RBSA Advisors had estimated LIC’s worth to be between Rs 9.9-11.5 lakh crore, meaning a 10% stake sale could fetch the government around Rs 99,000-1,10,000 crore. Some reports even suggest a possible valuation of Rs 15 lakh crore.
The big ticket privatisation of fuel retailer-cum-refiner BPCL has been delayed due to investors’ concern on non-green technology assets, but the sale could be through in FY23, Pandey said.
On the government setting a low disinvestment target of Rs 65,000 crore for the next financial year, Pandey said it was a reasonable number, but the actual receipts could be higher also depending on the market conditions.
“Privatisation is a lengthy competitive process. In this kind of scenario, it is better to have reasonable and rationalised target, instead of setting a tall number (target) and grappling with it,” Pandey said.
Citing the example of BPCL, the official said market sentiment on petroleum sector assets has changed a lot due to the global focus on green technology assets. “It (investor focus on green projects) is one of the very important factors why things have slowed down in BPCL privatisation,” Pandey said. Bidders have to finalise financial arrangement with investors before financial bids are called for the oil firm.
In November 2020, multiple bidders including Vedanta, Apollo Global Management and Think Gas (I Sqared Capital) — showed interest in the government’s 52.98% stake in BPCL. However, US private equity firm I Squared Capital is reported to have dropped out of the race to buy the state-run oil firm, due to the complex deal structure and lack of financial backers for the transaction.
The market value of the Centre’s entire stake in BPCL is worth about Rs 44,000 crore at the current prices.
On the way forward for the new public sector enterprises policy, which envisions minimum number of PSUs in strategic sector and complete exit from non-strategic sectors, Pandey said: ”There will be some privatization conclusions, some closures and some bid failures. This will be the typical pattern and we should work out on these transactions and then only this new PSE policy cane be taken forward.”
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