The Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Narendra Modi, approved the market listing of all five government-owned general insurance companies (GICs), namely New India Assurance, United India Insurance, Oriental Insurance, National Insurance and General Insurance Corporation of India (GIC Re).
The initial public offer of equity would be through either issue of new shares or offloading of existing ones through the offer-for-sale route, Finance Minister Arun Jaitley told the media after the Cabinet and CCEA meetings.
New Cabinet approval will not be needed before hitting the bourses but the proposals would be cleared by Jaitley and Transport Minister Nitin Gadkari. Such an arrangement, known as alternative mechanism for disinvestment (AMD), was also cleared by the CCEA.
"Under the listing requirements, one of the conditions is that the government holding has to come down from 100 per cent to 75 per cent," noted Jaitley. Asked if any could be listed in the current financial year, before March 31, he said all the procedural formalities were over. "Now, the companies will have to comply with the listing requirements of stock exchanges and the Securities and Exchange Board of India (the markets regulator)," he said.
Rules of the Insurance Regulatory and Development Authority of India (Irdai) would also be followed.
"Whatever are the regulations, they have to comply," said Jaitley, when asked if the companies would initially divest 10 per cent stake, as in the regulatory requirement.
"(This) listing will help the market in discovering value for the general insurance business in India since there are no listed players currently. It is also expected to pave the way for listing of private players in the next couple of years," said Shashwat Sharma, head of insurance at consultancy KPMG.
While the listing of the four general insurers is a welcome step, the main concern among industry and market experts is that the governance in these companies needs to be strengthened and the focus on social insurance has to come down.
"Both these factors make the four general insurance firms not-too-attractive for investors. Also, they are not very profitable companies. We expect the four companies (excluding GIC Re) to have a combined value of around Rs 60,000-Rs 75,000 crore," said an industry player. These valuations imply that the government can raise around Rs 15,000-18,000 crore from the stake sale.
Market participants are more bullish about GIC Re because it is a performing organisation and after Tuesday's circular from Irdai which gave it the right of first refusal, the country's only reinsurance company is expected to have an advantage over other players in the same segment.
In his Budget Speech for 2016-17, Jaitley had said public shareholding in the state general insurance companies was a means for ensuring higher levels of transparency and accountability, and that these would be listed.