Investment advisers are gearing up to grab a sizeable mandate from non-resident Indians as they look to cash in on the current IPO frenzy and the much-awaited divestment plans of public sector companies, the grand monetisation initiative and divestment of PSU crowns, such as Life Insurance Corporation of India (LIC).
“Insurance behemoth LIC will be a prized catch for investors when its shares will be offered to the public in India’s biggest ever public issue, a part of the government’s efforts to raise INR 1.75trn ($23.5bn, £17.2bn, €20bn) through disinvestment in the current financial year,” said CA Ugamoorthy, managing director of Yuga Accounting & Management Consultancy, Dubai.
The government has amended the foreign exchange management rules to increase the limit on foreign direct investment in the insurance sector to 74% from the current 49%.
India is expected to finalise investment bankers for the public issue with 16 merchant bankers in the race to manage the much-awaited share sale.
Many international bankers including Goldman Sachs, JPMorgan, BofA Securities have shown interest in managing the offering and the 16 book-running lead managers are set to make a presentation before the department of investment and public asset management.
Advisers believe the listing of LIC shares will act as a booster for the Indian stock markets, which have been witnessing a continuous rally in the past one month.
Benchmark index Sensex has been scaling new heights every other day and now hovers around 56,000 points.
“This grand public issue will set many trends. It will be the largest ever IPO in India. Also if the policyholders utilise the opportunity to subscribe to the proposed 10% of the IPO reserved for them, it will lead to the opening of millions of demat accounts, further accelerating the equity culture. It will also help boost India’s market cap which reached INR 226.5trn,” Ugamoorthy said.
Grand monetisation plan
More exciting news is in the offing when the government implements a mega programme, National Monetisation Pipeline (NMP), to privatise its infrastructure assets worth INR 6trn.
These assets include state-owned enterprises in the aviation, power, oil and gas sectors in which NRI investors are expected to show interest. In order to make asset monetisation attractive to such foreign investors, the government has recently allowed 100% foreign direct investment in specific industries.
The monetisation plan comprises a four-year pipeline of the government’s brownfield infrastructure assets. Besides providing visibility to investors, the pipeline will also serve as a medium-term roadmap for the asset monetisation initiative of the government.
Roads, railways and the power sectors account for nearly 70% of the monetisation plan. The most valuable assets are toll roads, railway stations and telecom towers.
Under NMP, passenger trains, railway stations to airports, roads, and stadiums will be included. Resources will be mobilided and properties will be developed by involving private companies in these infrastructure sectors.
The roads sector will see nearly 26,700km of roads being monetised as part of the plan. Roads have the highest share in the NMP at 27%.
The railway monetisation plan will contribute 26% to total NMP revenues and include 400 railway stations, 90 passenger trains, an entire 741 km tretch of Konkan Railways, 265 railway-owned goods sheds, as well as 15 railway stadiums and colonies, apart from 673 km of dedicated freight corridors.
The government will also put 286,000 km of BharatNet Fiber on the block, as well as 14,917 telecom towers owned by BSNL and MTNL. This segment will contribute around 6% of the total NMP target.
The government plans to monetise about 8,154 km of natural gas pipelines and the contribution will be about 4% of the overall NMP target up to FY25. The longest of these will be the Hazira-Bijapur-Jagdishpur (HBJ) pipeline running into 5,030 km. In addition, another 3,930 km of petroleum products and LPG pipelines will be monetised.
“The government will not transfer ownership of the asset to the private partner. Only the right to operate and monetise the asset will be transferred and the core asset will be transferred back to the government at the end of the tenure. However, some of these companies will eventually divest their stake to the public, which will be attractive for NRI investors,” said Biju R, director, FRG Chartered Accountants, Dubai.