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    Govt set to divest 10% in GIC Re, New India Assurance

    Synopsis

    The government had divested close to 15% stakes in both New India and GIC in 2017. The disinvestment of GIC Re resulted in a mop-up of Rs 11,370 crore and New India’s IPO raised Rs 9,600 crore. Both the companies are currently trading at big discounts to their issue price.

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    An offer for sale of shares would have a threefold advantage of complying with regulations, improving liquidity in the shares and helping government raise revenues.

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    (This story originally appeared in on Oct 24, 2020)
    Mumbai: Government is set to offer 10% shares in the country’s largest non-life insurance company New India Assurance through an offer for sale to the public. The Centre may also do a similar dilution in the General Insurance Corporation (GIC Re). However, the timing is not decided.

    The government had divested close to 15% stakes in both New India and GIC in 2017. The disinvestment of GIC Re resulted in a mop-up of Rs 11,370 crore and New India’s IPO raised Rs 9,600 crore. Both the companies are currently trading at big discounts to their issue price.

    One of the reasons for not going public was that the shares are considered to be undervalued as not only are their prices at a 20% discount to book value, but also that New India has legacy investments in equities and real estate that are not reflected in the book value.

    Besides ambitious pricing in the IPO, another reason for the discounts is the relatively lower level of liquidity in the shares. Large chunks of the shares are held by public sector institutions.

    An offer for sale of shares would have a threefold advantage of complying with regulations, improving liquidity in the shares and helping government raise revenues. GIC Re has a market cap of Rs 21,333 crore, while New India’s share price values the company at Rs 17,000 crore. A 10% dilution would give the government close to Rs 4,000 crore.

    All listed companies are required to have at least 25% of their holding with the public. In May this year, Sebi had relaxed the 25% minimum public shareholding norms for listed companies in the wake of the Covid outbreak. The regulator asked stock exchanges not to take any penal action against companies that were to comply with the minimum shareholding rule between March 1 and August 31. Subsequently, in August, the government notified changes in the Securities Contract (Regulation) Rules giving listed companies three years to comply with the minimum shareholding rules.
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    9 Comments on this Story

    Dinesh gala27 days ago
    Res goverment. Yourdisinvestment in hal. At 950...nowa rate market..700. What your next disinvestment who trust gov co..gicre. at 118...where private insurence hdfc life. 585..this oldest co gic re. What wrong with co..it should be at 750. Rate..dividend pay co bonus given co..now suddenly drop at this level..who will trusting in disinvestme tomorrow we can get in market..2 figure also...
    Bk Win33 days ago
    Again retail investors will be robbed of their money once again. Previously also in GIC v were hugely looted. Govt. should think of it and compensate by giving the shareholders a huge discount in prices.
    013585 AGARWAL VIJAY KUMAR33 days ago
    Govt. should act fair in public offering of PSU shares for disinvestments. Large public has lost huge money by wrong statements & untimely directions & high valuation than the factual state of affairs.Some brokers having political links try to act like Harshad Mehta to inflate valuations to raise more funds. There are number of such cases to reduce faith of public in prospectus of such companies. Loss incurred can't be forgotten & interest is lost. Book values are also inflated due to inefficiencies & wrong psychology of functionaries.
    Disinvestment has to be fair to investor & not to make them suffer for investment in PSUs. Thinking &strategies have to be changed to leave some margin for success.Scrupulous practices advised by Merchant Bankers to show greater recoveries be avoided.
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