LIC: Government Disinvestment and Upcoming IPO overview

What is Disinvestment and is Disinvestment in Government company is good or bad?

Disinvestment is when governments or organizations sell or liquidate assets or
subsidiaries. (For example selling their stakes)

There is a famous quote saying, “Government has no business doing business.”

Government is supposed to be a facilitator.

Disinvestment in government companies is both good and bad, given the context.
Letting go of any company can be a really good decision or really bad decision
depending upon the financials of the company.
For example Air India, its operating cost for one day was approx 100 crores, there was
no profit and lots of debts. Now it has been sold off to TATA Group, it will be handed
over to them by the end of January.
This lead to two things:
1.Since, now it will be in corporate structure, Airline’s efficiency might get better and lots
of positive changes can be expected.
2. This also removed the burden of operating cost from the government, and that money
can be invested somewhere else for the betterment of the nation and citizens.

Whereas LIC (Life Insurance Corporation of India), the Government is not letting it go
completely, as it is Profitable company.

Now the question is, if LIC is a profitable company, why is the government selling it and
making it go public by bringing IPO?
● First reason is to Increase the market valuation of LIC.
Right now there is so much money the government would be putting (inherent
cost of setting up business, inherent cost of running the business) in business.

But if the government will run the business, then how will it focus on different
works as there are many other PSUs and many other kinds of responsibilities
including infrastructure, healthcare, education etc.These institutions were created
when the Indian economy was not strong, now it's no longer the case, now it has
matured a lot, there is more stability, understanding and depth. And along with
that these institutions have also matured.

By going public and raising funds through IPO, it can invest in expanding their
scheme and services. Not only that, they can scale their business in the
international market as well.
 ● Second reason can be, widening of Budget deficit due to the Corona Pandemic.
By selling its stakes and bringing LIC IPO can help to reduce it, because we are
actually talking about lakhs of crores, it can decrease the budget deficit and
cause fiscal growth.
The Current valuation of LIC is approx. 4 trillion rupees, whereas the embedded
value of its IPO valuation is 4 times that is around 15 trillion rupees, with
minimum dilution of 5%
EDIT 1: In latest reports of Economic times, it is being said that the Government
will keep the valuation of IPO in single digit trillion rupees, and even with that it
would be India’s biggest IPO.
This IPO is even being called India’s Aramco Moment, and it will be listed along
with Gulf oil Giant’s listing which is the largest listing in the World.

In conclusion, the exact value will be known after listing but listing of LIC will be a big
event in the history of the Stock Market and it will test the nation's capital market. Many
big players will be involved and most retail investors will apply for its IPO.
It has lots of scope of future growth and expanding its field of expertise.S