The story began when the government launched its Initial Public Offering (IPO) roadshows to offload 5% stake in the 100% government-owned corporate entity. Our Sprouts’ Special Investigation Team (SIT) learned that investors pan India were afraid that the conflict of interests between the government’s goals and shareholders’ equity stakes might result in bad losses for the latter.
The SIT further learnt that the prospective shareholders were of the opinion that by virtue of the government holding a majority stake in LIC, it may exert its influence to force the public sector undertaking (PSU) to absorb losses from other government run corporate entities.
As our SIT team got talking to the investor community, they cited the instances of MTNL and IDBI in the previous few years. Stating that if this trend was allowed to continue unabated, the cash rich LIC might soon turn into another loss making unit, the investment team expressed serious doubts about the wisdom of purchasing the IPO shares.
“If the governments down the line continue to use LIC as a buffer for bailing out loss making financial units and entities that are running into bad debts, we as investors will be stuck with bad stock options,” an investor informed our SIT.
Our SIT also learnt that the government plans to cover up its annual fiscal deficit by using the proceeds from the sale of the LIC IPOs. However, this move by itself may not fetch relief as much depends on how well the government and ministry of finance is able to convince the investors and market forces on the apprehensions they have voiced.
