NEW DELHI: The Union Cabinet on Wednesday gave in-principle approval to divesting 25 per cent stake in each of five fully-owned public sector general insurance firms. The companies will be listed on the stock exchanges soon, which will result in arriving at a true valuation of the companies. This move could also excite private sector insurers to issue fresh public stocks or fresh shares.
Finance minister Arun Jaitley, speaking to reporters after the Cabinet meeting today, said the five state-owned general insurance companies -- New India Assurance, Oriental Insurance, National Insurance, United India Insurance and national reinsurer General Insurance Company -- will be listed on the stock exchanges by way of issue of fresh shares or offer for sale (OFS).
The finance minister had in his Budget speech for 2016-17 announced that public shareholding in government-owned companies was a means of ensuring transparency and accountability; to promote this objective, general insurance companies owned by the government will be listed on the stock exchanges.
Trade unions cry foul
However, trade unions have some issues with the government’s decision. “This is not acceptable since these firms have been making profits and divestment is not going to help the government, the people or the market,” said G Sanjeeva Reddy, secretary-general of the Congress-affiliated Indian National Trade Union Congress (INTUC).
“We are opposed to it and a majority of the unions are against the decision,” said Gurudas Das Gupta, CPI leader and member of the All India Trade Union Congress (AITUC).
The Committee of Central Trade Unions is scheduled to meet next week in Delhi to decide the future course of action. “We will discuss this with all the trade unions, irrespective of their affiliations,” said Sanjeeva Reddy.
Analysts give a thumbs-up
Analysts were gung-ho with the decision. “This will not have any direct impact on individual customers, but it will give them more information about the financial health and clarity about the company,” said Sandip Khetan, a partner in an Indian firm of EY Global..
“Listing of public sector general insurance companies will help the market in discovering the value of the general insurance business in India since there are no listed players currently,” said Shashwat Sharma, partner and head of insurance, KPMG India
It is also expected to also pave the way for the listing of private-sector general insurance companies in the next couple of years.
“The OFS will directly help the government to meets its disinvestment targets since OFS will go to the government,” says Khetan.
It could also increase investor appetite for private sector insurer IPOs. The Insurance Regulatory and Development Authority of India (IRDA), has already issued listing norms. It suggested that all general insurance companies with operations for eight years or more and life insurance companies with 10 years in service should take steps to get their shares listed.
“Listing on the stock exchanges would also enable public sector players to raise additional capital from the market to fund future distribution expansion, technology enhancement,” said Shashwat Sharma.
Currently, amongst the private insurers, Prudential and ICICI are listed in the Indian equity market. Already M&A of private insurance firms are in progress. Once that happens they will also get listed.
“As an investor today one can invest in a bank or financial services company or in an NBFC or in a bank that has an insurance vertical like SBI and ICICI. Investors will have a direct exposure for long-term equity, since the insurance companies funds are stable,” says Khetan.
This will also attract more foreign capital and long term capital will come into India.
Precursor to LIC Listing?
The markets were agog that the government’s decision is a precursor to the listing of Life Insurance Corporation. But the government, analysts say, will not touch LIC for the next few years. It is difficult to value such a company. The government may have to go through the same struggle as they faced while listing Coal India
“It is like listing the Indian Railways. Look at what happened to the attempt to divest Bharat Sanchar Nigam Limited. These companies are so entrenched across India.”