After missing the divestment target by a wide margin in FY 2021-22, the government expects to make Rs 65,000 crore this year through asset sales. Most of the target is said to come from the LIC IPO, which previously aimed to collect around Rs 50,000 crore. However, now the government has reduced the size of Life Insurance Corporation (LIC) to Rs 21,000 crore by deciding to sell a 3.5 percent stake, up from the previously planned 5 percent.
The government has a divestment target of Rs 65,000 crore for the current fiscal year 2022-23, according to the Union budget documents. For the 2021-22 fiscal year, it had set a divestment target of Rs 1.75 lakh crore. Out of this, only Rs 78,000 crore could be made, a deficit of 55.4 percent.
Among the companies to be divested this year, there are three companies on the table: Bharat Petroleum Corporation Ltd (BPCL), RINL and Pawan Hans. Apart from that, LIC’s IPO is also expected to deliver much of the target amount.
The LIC’s IPO was scheduled to take place last fiscal year, but was postponed first due to the COVID-19 pandemic and then due to the war between Russia and Ukraine.
LIC IPO: Government Budget Deficit Target
The reduction in the size of the LIC IPO is expected to have a negative impact on the government budget deficit target as the cancellation fee has been sharply reduced from the previously targeted Rs 50,000 crore to Rs 21,000 crore now.
“It will be difficult for the government to meet its deficit targets as the size of the IPO is now much smaller,” said a Bloomberg report citing Kranthi Bathini, a strategist at WealthMills Securities Pvt, from Mumbai. “The war in Ukraine has completely changed the mood of foreign investors, who are now hesitant to invest. LIC IPO has already been postponed, first by Covid, then this war. It is difficult for the government to postpone it further.”
LIC IPO: the latest developments
According to the latest development on the LIC IPO, the government will not approach the market for LIC FPO for a year, sources have told CNBC-TV18. Under Sebi’s rules, companies are not allowed to make a follow-up offering (FPO) for six months after the IPO. Furthermore, the sources have also said that market regulator Sebi is considering the exemption requested by LIC from a mandatory 5 percent listing.
The Center has also submitted a new draft red herring prospectus (DRHP) to the Securities and Exchange Board of India (SEBI) ahead of the LIC IPO and is likely to publish a red herring prospectus (RHP) in the first half of this week. Submit.
The IPO of Life Insurance Corporation (LIC) is expected to go on sale in the first week of May. The government is likely to price LIC’s IPO at Rs 950-1,000 per share. The IPO is expected to value LIC at approximately 1.1X price/embedded value.
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