China Not Allowed For LIC IPO, Privatization? Govt Can Ban Chinese Investments In LIC
Four senior government officials and a banker told Reuters that New Delhi wants to prevent Chinese investors from buying shares in Indian insurance behemoth Life Insurance Corp (LIC), which is set to go public, highlighting tensions between the two countries.
Chinese Investors Will Be Blocked From Buying Shares In LIC
The state-owned LIC is a strategic asset, with assets of more than $500 billion and a market share of more than 60% of India’s life insurance industry.
While the government intends to allow international investors to join in what is expected to be the country’s largest-ever IPO, worth up to $12.2 billion, the sources said it is wary about Chinese ownership.
Political tensions between the two nations erupted last year after their soldiers clashed on the disputed Himalayan border, and India has pushed to limit Chinese investment in key companies and areas, as well as prohibit a slew of Chinese mobile apps and increase monitoring of Chinese imports.
“With China after the border clashes, it cannot be business as usual. The trust deficit has significantly widened (ed),” said one of the government officials, adding that Chinese investment in companies like LIC could pose risks.
What Officials Has To Say On This Matter?
The sources did not want to be identified since negotiations on how to limit Chinese investment are still underway and no final decisions have been taken.
India’s finance ministry and the Life Insurance Corporation of India did not respond to Reuters’ requests for comment via email. China’s foreign ministry and commerce ministry did not immediately respond to requests for comment.
Prime Minister Narendra Modi’s administration hopes to collect 900 billion rupees by selling 5% to 10% of LIC this fiscal year, which ends in March, to address budget limitations.
According to sources, the government has yet to decide whether it would sell one tranche of shares to raise the complete amount or whether it will sell two tranches, sources have said.
Can Foreign Institutional Investors Buy LIC’s Offering?
Options to prevent Chinese investment in LIC include amending the current law on foreign direct investment with a clause that relates to LIC or creating a new law specific to LIC, two of the government officials said.
Under current legislation, no foreign institutional investors are permitted to invest in LIC, but the government is considering permitting foreign institutional investors to purchase up to 20% of the company’s offering.
Two government sources suggested that changing the current legislation on foreign direct investment with a phrase special to LIC or developing a new statute specific to LIC are two options for preventing Chinese investment in LIC.
A third option being explored is barring Chinese investors from becoming cornerstone investors in the IPO, said one government official and the banker, although that would not prevent Chinese investors from buying shares in the secondary market.
Ten investment banks including Goldman Sachs (GS.N), Citigroup (C.N) and SBI Capital Market have been chosen to handle the offering.