The central government of India has decided to list five state-owned general insurance companies. The decision, taken by the cabinet committee on economic affairs (CCEA), has paved the way for the government to bring down its stake to 75% in these general insurance IPO hopefuls.
These general insurance IPO candidates are New India Assurance Company, United India Insurance, Oriental Insurance Company, National Insurance Company and reinsurer General Insurance Corporation of India (GIC). “A greater focus on growth and earnings can also be expected,” said a CCEA statement while adding that the government will bring down its stake in one or more tranches over a period of time.
“Listing will open the way for the companies to raise resources from the capital market to meet their fund requirements to expand their businesses, instead of being dependent on the government for capital infusion,”
– Finance ministry statement
“It (listing) could be either by fresh equity or Offer for Sale (OFS). Both options are available. We can expand the shareholding so that the government share comes down to 75%,” finance minister Arun Jaitley said after the cabinet meeting in a clear indication that the government is open to both options to make general insurance IPO a reality.
When asked when the insurers are likely to get listed, Jaitley said procedural formalities at the government’s end are over and the companies now need to comply with the listing requirements with stock exchanges and SEBI. While the minister did not give a clear answer about the listing timeframe, getting all clearances is a time-consuming task and thus, it is unlikely that these listings will take place before 6 months.
Divestment = Slow-moving matter
The government’s move is part of its divestment drive which aims to generate INR56,500 crore (INR565 billion) by selling stakes in public sector firms in financial year ending March 2017. However, previous examples of Cochin Shipyard, Hindustan Aeronautics, Airports Authority of India, and Pawan Hans are grim reminders that divestment programs are usually quite slow. Despite the current government’s best intentions, these companies are yet to launch their IPOs.