The Union Finance Ministry has announced its plan to sell a 6.78% stake in the General Insurance Corporation of India (GIC Re), a public sector reinsurance company. This stake sale is expected to generate around Rs 4,700 crore for the government. This marks the first time since GIC Re’s listing in 2017 that the government is selling its shares through the offer for sale (OFS) route. The sale will begin on Wednesday.
Key Details of the Sale:
- The offer for sale will open for non-retail investors on Wednesday, and retail investors and GIC employees can place their bids on Thursday.
- The government plans to sell a 3.39% equity stake with an option to sell an additional 3.39%, known as a “green shoe option”.
- The minimum price, or floor price, for the OFS is set at about Rs 395 per share, which is around a 6% discount to the current market price of Rs 420.8 (as of Tuesday, when GIC Re’s shares dropped by 1.4%).
Currently, the government holds an 85.78% stake in GIC Re. The decision to sell part of its stake is similar to a strategy used during the Life Insurance Corporation (LIC) IPO, where the government sold a portion of its shares to make the company eligible for inclusion in index funds.
Looking Ahead: Future Plans for GIC Re
Ramaswamy Narayanan, Chairman and Managing Director of GIC Re, hinted at more stake sales in the future. He mentioned that after the general elections, the government might start the process of divesting around 10% of its stake in GIC Re, although no specific timeline has been set.
The goal is to increase the public shareholding to meet the regulatory requirement of a minimum of 25%. Currently, only about 14% of GIC Re’s shares are held by the public. Narayanan clarified that GIC Re does not need additional capital at the moment, as its financial health is strong, which indicates that the main aim of the sale is to comply with regulatory requirements.
Financial Targets and Broader Context
Starting from the financial year 2024-25 (FY25), the government has shifted its approach and stopped setting specific disinvestment targets. Instead, the Union Budget for FY25 has set a target of Rs 50,000 crore for miscellaneous capital receipts, which includes disinvestment proceeds. This is an increase from the revised estimate of Rs 30,000 crore for FY24.
What Does This Mean for Investors?
For investors, the government’s decision to sell a stake in GIC Re at a discounted price provides an opportunity to invest in the reinsurance sector at potentially attractive valuations. It also aligns with the government’s broader strategy of gradually reducing its stake in public sector companies, opening up more opportunities for public and institutional investors.
As the sale unfolds, it will be interesting to see how the market responds and whether the government’s move will pave the way for further disinvestments in the near future.
