Senior government officials and a banker said the Centre wants to prevent Chinese investors from purchasing shares in India’s insurance behemoth Life Insurance Corp (LIC), which is set to go public, underlining tensions between the two countries. The state-owned LIC is a strategic asset with 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, valued up to $12.2 billion, the sources said it is wary about Chinese control.
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Political tensions between the two nations spiked last year after soldiers fought on the Himalayan border, and India has attempted to limit Chinese investment in critical industries and sectors, prohibit a slew of Chinese mobile applications, and scrutinise Chinese imports.
Requests for a response from China’s foreign ministry and commerce ministries were not immediately returned. To address budget limitations, Prime Minister Narendra Modi’s government hopes to collect 90,000 crores by selling 5% to 10% of LIC this fiscal year, ending in March.
According to sources, the government has yet to determine whether it would sell one tranche of shares to raise the whole amount or sell two tranches. Under present legislation, no foreign institutional investors are permitted to participate in LIC, but the government is contemplating permitting foreign institutional investors to purchase up to 20% of the company’s stock.
Two government sources indicated that modifying the present legislation on foreign direct investment with a provision unique to LIC or drafting a new statute related to LIC are two options for preventing Chinese involvement in LIC. They went on to say that the government was aware of the challenge in policing Chinese investments that may enter through the back door and that it would try to come up with a strategy that would safeguard India’s security while not deterring foreign investors.
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According to one government official and the banker, a third option being considered is excluding Chinese investors from becoming cornerstone investors in the IPO, but this would not preclude Chinese investors from purchasing shares on the secondary market. Ten financial banks will handle the offering, including SBI Capital Market, Citigroup, and Goldman Sachs.
