Soon after the finance minister Nirmala Sitharaman
announced the disinvestment of Life Insurance Corporation (LIC)
during her budget presentation last week, there has been an attempt to create
confusion and fear among its key stakeholders -employees and customers.
Privatization is full or majority transfer of a
business, industry, or service from public to private ownership and control. IPO means Initial Public Offering. It is a process by which a privately held
or public sector entity/company becomes a publicly traded company by offering
its shares to the public for the first time. Through the IPO, the entity gets
its name listed on the stock exchange.
Contributed by Aryan Rana, Founder and Chief Mentor, AARYANA MATASCO
As per Economic Times story today, LIC has kick started the
Public Relations (PR) exercise to clean the air, which is ripening with fast
spreading rumor, and to take their stakeholders into confidence. This is a wise step.
The critics of Modi government have been calling the
share sale in LIC as ‘privatization’ which means either they are misleading or have
no idea what IPO (Initial Public Offer) is all about.
Privatization is full or majority transfer of a
business, industry, or service from public to private ownership and control. IPO means Initial Public Offering. It is a process by which a privately held
or public sector entity/company becomes a publicly traded company by offering
its shares to the public for the first time. Through the IPO, the entity gets
its name listed on the stock exchange.
While in the case of LIC disinvestment,
the Indian government is not selling the full or majority stake which means it’s
a sale or liquidation of shares by the government to reduce the fiscal burden
on the exchequer and to raise money for meeting specific needs, such as to
bridge the revenue shortfall.
Its not new, in the past also the government has listed or dis-invested several
of their public sector entities, from State Bank to ONGC, Coal India etc, the
list is quite long with so many government entities which are listed and hence
there is nothing to be worried about LIC as well. In-fact listing will make LIC
more disciplined, compliant, competitive, and provide access to financial
markets and unlock value.
The IPO will not be harmful to any stakeholder,
including employees and policy holders as the LIC ownership and management will
remain in the hands of Government of India.
IPO listing can immensely benefit all its stakeholders,
including employees. LIC may offer
decent discount on share subscription during the IPO to their employees
and if the share list at a good premium (which the market is already expecting),
it can create solid wealth for all stakeholders.
LIC is India's largest financial institution and its
disinvestment is a big bold decision. LIC invests an average of Rs 55,000 crore
to Rs 65,000 crore in the stock markets every year and is the largest investor
in the Indian stock market.
It would be wonderful to see the largest investor in Indian equity market become a great investment option for investors. And whenever LIC shares get listed on the stock exchanges,
it would easily emerge as the country's top listed company in terms of market
valuation.
The awareness, penetration and impact of this IPO would be so huge that it can easily attract millions of Indians into equity market as new investors.
The awareness, penetration and impact of this IPO would be so huge that it can easily attract millions of Indians into equity market as new investors.
It has 31.11 lakh crore assets under management,
nearly 300 million policy holders, 111,979 employees, a network of
1,537,064 individual agents, 342 Corporate Agents, 109 Referral Agents, 114
Brokers and 42 Banks for soliciting life insurance business from the public (as
per Wikipedia)
Hence, it’s not appropriate to spread confusion about LIC disinvestment through
IPO route, and which can help government raise funds and fill the shortfall in
receipts.
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