Looking to unlock value in IDBI Bank ahead of IPO, says LIC Chairman

Life Insurance Corporation is keen to unlock value in IDBI Bank in the run up to the insurance behemoth's IPO, which is likely to happen in FY21, its Chairman M R Kumar said on Friday.

Presenting the Budget, Finance Minister Nirmala Sithraman had said the government would sell a part of its 100 percent holding in LIC through an IPO in the next fiscal year.

Later, Finance Secretary Rajiv Kumar said the government could divest up to 10 per cent in LIC, which has an enterprise value of Rs 36 trillion.

The government aims to garner Rs 90,000 crore from the listing of LIC and stake dilution in IDBI Bank in the next fiscal out of the total disinvestment target of Rs 2.10 trillion.

In January 2019, LIC picked up 51 per cent stake in IDBI Bank, making it the majority shareholder of the lender. The Irdai regulations bar an insurance company from holding more than 15 per cent in any listed entity. However, Irdai has given some exemption to LIC in regard to its holding in IDBI Bank.

LIC Chairman Kumar said though Irdai has not fixed any timeline for LIC to reduce its stake in IDBI Bank, the Reserve Bank has given a 12-year timeframe.

"We would not want to wait that long, especially when we are also going to be listed, but we have to find some ways to unlock value in IDBI Bank," Kumar told reporters here on Friday.

He said once the bank comes out of the lending restrictions imposed by the RBI under the Prompt Corrective Action (PCA) framework and becomes profitable, the bank would be able to attract investors.

"Once they come out of the PCA and start lending again, I believe that their profitability will go up substantially and also attract investors," he said.

IDBI Bank, which is under PCA framework since May 2017, had met RBI in January to seek lifting of the operational restrictions, PTI had earlier reported.

The lender had made a presentation to the RBI on its improved financial position. The government holds 47.11 per cent stake in IDBI Bank, while 51 percent is with LIC. This leaves practically nothing for investors, as its floating shares are only 3 per cent of the paid-up equity.

Sitharaman had said the government would want to tap the retail investor segment to sell its stake completely.

Kumar said the stake sale by the government in IDBI Bank will help bring in more retail investors.

"Once the stake sale happens, people will show more interest in the scrip, because as of now with 51 per cent with us and over 47 (per cent) with the government, there is hardly any free float to give value to shareholders," Kumar said.

When asked about the IPO's timing, Kumar refused to give any timeline.

"Yes, the finance secretary was on record saying listing will happen in the H2 of FY21. We have to work it out. I don't know how long it takes for the very simple reason that we are doing for the first time," he said.

Finance Secretary Rajiv Kumar had on Sunday said the LIC IPO may be done in the second half of FY21.

The LIC chairman said the listing would need some legislative changes in the LIC Act. "Basic amendment to the LIC Act would be required," he said.

Explaining further, the corporation's appointed actuary Dinesh Pant said, "LIC (Act) has got a Section 24 where the entire fund of the corporation is a controlled fund which is under one fund. So how will be now be bifurcated. There is Section 28 about dividend distribution and so all those things have to be taken care of."

He also said it needs to be seen how Section 37,which talks about the sovereign guarantee, is amended. Spelling out the priorities in the run up to listing, he said the focus would be on creating right perception in the market and to work on the process of valuation.

He also said the policyholders and employees will not have any impact due to the listing.

Earlier this week, nearly 1 lakh employees of the corporation staged an hour-long walkout against the IPO plans.