Govt hopes to mobilise Rs 1.3 lakh crore from disinvestment next fiscal; LIC IPO likely to be deferred

The government could mobilise about Rs 1.3 lakh crore, twice the amount estimated in FY23 Budget  from disinvestment in the next financial year as the mega Life Insurance Corporation (LIC) IPO is likely to be deferred to the next financial year.

A 5% stake sale in LIC, which could have fetched Rs 65,000-70,000 crore, was enough to achieve the revised (RE) disinvestment receipt target of Rs 78,000 crore (down 56% from the Budget estimate of Rs 1.75 lakh crore) for FY22. Without the LIC IPO, the government’s disinvestment receipts could be just Rs 15,000-20,000 crore in FY22.

The government had set a modest Rs 65,000 crore disinvestment target for FY23.

The market volatility after the outbreak of Ukraine-Russia war has forced the government to review the proposed LIC IPO, which may not hit the market as planned during this month on concerns that foreign investors may stay away from the issue.

The failure to execute LIC IPO, however, won’t need a sharp revision of the targeted fiscal deficit of 6.9% of GDP for FY22. Thanks to buoyancy in tax revenues, the Centre could collect additional net tax revenues of up to Rs 80,000 crore over and above the FY22RE, offsetting the shortfall on account of the postponement of LIC IPO.

Besides LIC IPO, some of the big-ticket strategic sales such as that of fuel retailer-cum-refiner BPCL and IDBI Bank, originally planned for this financial year, are expected to conclude next financial year.

The market value of the Centre’s entire stake in BPCL is worth about Rs 40,000 crore at the current prices. However, the Centre could garner between Rs 50,000-60,000 crore going by its recent market valuation, which has been affected due to stock market volatility. In November 2020, multiple bidders including Vedanta, Apollo Global Management and Think Gas (I Squared Capital) — showed interest in the government’s 52.98% stake in BPCL. However, US private equity firm I Squared Capital is reported to have dropped out of the race to buy the state-run oil firm, due to the complex deal structure and lack of financial backers for the transaction.

The other big-ticket rollovers to the next financial year include the government’s proposed 45.48% stake in IDBI Bank worth about Rs 20,000-25,000 crore. By making suitable changes to railways’ land licensing policy, the government could offload a 30.8% stake in the Container Corporation worth about Rs 11,000 crore at the current market prices. With the Supreme Court recently allowing the sale of the government’s residual 29.54% stake in Hindustan Zinc worth about Rs 40,000 crore, it could be another big-ticket disinvestment in FY23. Shipping Corporation of India privatisation may also fetch around Rs 4,000 crore.

Even though the pipeline for the next financial year is robust, their fructification would depend on market appetite.