NEW DELHI: The Centre may sell up to 10% stake in state-run General Insurance Corporation (GIC Re) in the current financial year, a senior official told FE. “GIC Re received a very good response in the roadshows held recently to apprise potential investors of the company’s unique position in the Indian reinsurance market, and its strong growth potential,” the official added.
The official, however, said the government has no immediate plans to sell any more stake in Life Insurance Corporation (LIC), but added that it would explore the option “at appropriate times in small tranches”.
GIC Re held investor outreach programmes in New York, Singapore, Hong Kong, Dubai and London between February 19 and March 1. A 10% stake in the company is worth about Rs 5,700 crore at the current market prices. The reinsurer’s share price closed at Rs 324.95 on Friday, down 1.87% from the previous closing.
Currently, the Centre owns 85.78% of GIC Re and needs to reduce it to 75% by August this year to meet the minimum public shareholding (MPS) of 25% in the company.
However, the company may get a one-year extension to meet the MPS norms. “An extended period of one year to meet MPS norms is expected,” the official quoted above said.
Depending on the market appetite, the government could sell around 10% stake in one or in a couple of tranches in FY25, or latest by August next year.
Some of the state-run companies which met MPS norms have seen their share prices rise exponentially. For instance, after Hindustan Aeronautics (HAL) met the MPS norm in March last year, its share price doubled.
GIC is the only Indian reinsurer which provides support to direct insurers in India and receives obligatory cessions on every policy by domestic general insurers.
In the roadshows, the GIC showcased its dominant position in the domestic market with a 67% share gross reinsurance premium of $4.4 billion (FY23). The rest of the shares are with foreign reinsurance branches (FRBs).
India’s general insurance market is estimated to grow at a compound annual growth rate (CAGR) of 9.9% during 2021-2026. Reinsurance premiums in India are expected to touch $12 billion by 2025, according to investors presentations.
GIC Re is expected to maintain market leadership going forward on strong financials, adequate capacity and expertise. GIC’s return on equity was at a solid 20.1% RoE (return on equity) in FY23, while its net profit rose 2.9 times on year to $830 million in FY23.
Only after IPO investors are rewarded by the market, the government will initiate the sale of at least another 1.5% stake in LIC to make the stock eligible to be part of index funds to attract a larger long-term investor pool.
LIC share price touched Rs 973.05 on Friday, up 2.5% compared with the IPO issue price of Rs 949 on May 17, 2022. Given the volatility in the share price of LIC after listing in May 2022, the government recently gave a 10-year window for the insurance behemoth to MPS norm of 25%. The government owns 96.5% in LIC.
Source: The Financial Express