Stock Market Rout Likely To Derail Centre’s Divestment Plan For LIC, BPCL

A sudden rout in the stock market has put the government's divestment targets in limbo, especially for its stake sale in Life Insurance Company (LIC) and Bharat Petroleum Corporation Ltd ( BPCL).

In her last year’s budget speech, Finance Minister Nirmala Sithraman had announced that the government would be listing Life Insurance Corporation (LIC) after making the required amendments to the law to begin the process. 

A year on, LIC’s listing is yet to happen. Despite the crash in the stock market, the government officials say that they plan to begin issuing shares of the company in mid-March. The government is keen on initiating the process before this financial year ends to meet its divestment targets for the financial year ending March. The government is struggling to put value to the assets of LIC and this has delayed the process of its IPO, which is touted as India's biggest ever to hit the market.

The Centre had set a divestment target of Rs 1.75 lakh crore for the financial year FY22.  While govt believes that it should make an effort to list LIC in the current financial year, it has given up on the process of  BPCL’s privatisation. Volatility in the energy markets and larger macro-economic uncertainty globally around the Covid-19 pandemic have halted the privatisation process of BPCL.

“BPCL looks unlikely this year. BPCL’s due diligence took longer than what was expected because of the pandemic. But with regards to LIC, the government is sure that it would be wrapped up before this financial year ends,” a senior government official said. 

BPCL’s financial data was made accessible to interested bidders in April, but the process of completing due diligence got held up due to the uncertainties and disruptions caused by the Covid-19 pandemic. 

In the last seven trading sessions, the foreign institutional investors (FIIs) have sold shares worth Rs 9,900 crore data from NSDL showed.

Till now, the Centre has received Rs 9,330 crore for the ongoing financial year in divestment proceeds. The proceeds were garnered from minority stake sales in HUDCO, Indian Petrochemicals Corporation (now Reliance Industries), and NMDC, among others. The amount is not inclusive of the Air India and Central Electronics Ltd privatisation proceeds. 

“The revised estimates of divestment proceeds in the upcoming budget could be less by about Rs 50,000 – 60,000 crore than last year’s budget estimates,” the official quoted above said. 

Buoyancy in tax revenues is expected to partly offset the shortfall in the divestment target. The government has not yet accounted for Air India privatisation. The share purchase agreement was signed by the government in October for selling off of Air India, 50 per cent stake in AISATS, and Air India Express to the Tata Group for Rs 18,000 crore. The company would be paying Rs 2,700 crore as equity and take over the national carrier’s debt worth Rs 13,500 crore, as per the terms of the agreement. 

The Banking Laws (Amendment) Bill, 2021, would enable the government to bring down its stake in two public sector banks to 26 per cent from the present 51 per cent. The government would get cracking on the strategic sale of IDBI Bank as soon as the LIC IPO is launched.