 "With LIC sitting on Rs 40,000 crore, ONGC, Coal India disinvestment simply cannot fail")
In October this year, when the government kicks off big-bang disinvestment proposals in ONGC, Coal India and NHPC to raise around 45,000 crore for the central kitty, there will be at least one safety net available to ensure that nothing goes wrong. The safety net of the Life Insurance Corporation (LIC).
Only, it may not be needed. And, moreover, this time LIC will be more than happy to lend a hand, if needed, having made a killing from most of the large “bailouts” it had to do for UPA disinvestments. LIC Chairman Surya Kumar Roy, of course, denies that he did any bailout in the past, and asks: “Tell me, is there a single PSU in which we lost money? Most of the investments have given us good returns, to the tune of over 40 percent, and in some cases even more than double,” he told The Economic Times.
He is, of course, being disingenuous. The fact that his bailouts made him money in the current bull market is not the same as saying there was no bailout.
In 2012, Pranab Mukherjee’s ONGC share sale - routed through the stock exchanges as offers for sale - got very little response till the last hour before trading ended. LIC prevented a fiasco. In the last 30 minutes, the insurer rushed in to put in its orders - possibly at the government’s urgings - for there was no other reason why it should invest only at the nth hour.
As we noted at that time: “It was only when it became clear that the issue would fail to get its Rs 12,000 crore target that the government panicked, and probably arm-twisted some of its cash-rich entities (Life Insurance Corporation and State Bank of India, among them) to somehow put in the money to rescue the auction from ignominy. This is what they tried to do, but came up against the stock exchange’s rules and closure time. For six-seven hours after the official close of the auction at 3.30pm, no one knew whether the issue was subscribed or undersubscribed.”
If this does not give the impression of a bailout one does not know what does.
Nevertheless, the LIC will now be happy it bought those shares because it has made huge profits from selling some of it in the current bull market. It also has surplus cash from this year’s premium income and cash flows to invest further in public sector shares offered for disinvestment this year.
As we noted last month, the government-owned insurer has been selling stocks such as ONGC, ITC, ICICI Bank, Tata Motors and HDFC Bank recently, and plans to build an additional war-chest of Rs 15,000-20,000 crore by such sales to stay liquid in time for disinvestment.
According to Chairman Roy, from this year’s expected allocation for equity of Rs 55,000 crore, about half is still with it. He told ET: “So far, we have invested just a little over half of what’s projected. If you see our past record, our investment in disinvestment has given us fantastic returns.”
What this means is that LIC has around Rs 40,000-crore-plus in hand just when the big disinvestment issues start hitting the markets from October.
Even without LIC, ONGC and Coal India are expected to find significant investor interest, especially the former, since global oil prices are benign and ONGC’s subsidy burden will start coming down. ONGC (along with Gail and Oil India) pick up upto 40 percent of the subsidy bills. The oil marketing companies are now making a profit on diesel, and losses on kerosene and LPG are coming down steadily.
This means diesel price deregulation is round the corner, and ONGC will reap the benefits of lower subsidies and improve its profitability.
As for Coal India, once the coal block allocations are cancelled by the Supreme Court, it could reap a windfall if domestic prices rise as a result of offering some of the blocks for auctions or if it is given charge of the cancelled allocations.
The macro conditions for a successful disinvestment programme are thus very much in evidence, and LIC is providing an additional measure of comfort by standing by with lots of cash.
The interesting point to ponder is this: when UPA disinvested, LIC was staring at huge losses. At one point last year, it was stuck with losses of Rs 3,000 crore. When UPA left, the resultant market buoyancy not only converted those losses into huge profits, but also gave it the wherewithal to invest more. Modi’s election has brought luck to LIC.