Five public sector insurance companies could collectively generate gains of around Rs 7,200 crore by selling 40 million shares of the National Stock Exchange (NSE) through its proposed initial public offering, according to the exchange’s draft prospectus. The estimate is based on an assumed IPO valuation of Rs 1,800 per NSE share. The final benefit for the insurers, however, will depend on the offer price eventually determined for the issue.
General Insurance Corporation of India (GIC Re) is expected to emerge as the biggest beneficiary of the proposed divestment. New India Assurance, National Insurance, United India Insurance and Oriental Insurance follow it.
The five insurers had acquired their NSE holdings for a combined cost of just Rs 6.8 crore, leaving them with the potential to realise substantial gains from the proposed share sale. The proposed transaction could provide a Major boost to the insurers’ earnings in the second quarter, with the NSE stake sale potentially translating into sizeable investment gains.
GIC Re and the four other state-run insurers were among the early investors in NSE, which began operations in 1994 and has since grown into India’s largest stock exchange by trading volume.
Together, the five insurers currently hold around 165 million .Their combined ownership is expected to decline from approximately 6.7 per cent to 5.1 per cent following the proposed sale.
Unlike these insurers, Life Insurance Corporation of India (LIC), NSE’s largest shareholder with a 10.72 per cent stake, is not selling any shares as part of the IPO.
NSE IPO Is Entirely An Offer For Sale
The NSE’s much-awaited public issue is expected to take place later this month. The draft prospectus indicates that the IPO will comprise an offer for sale of up to 148.91 million shares. Since the issue consists entirely of shares being sold by existing shareholders, NSE itself will not receive any money from the IPO.
The final proceeds for each participating shareholder will be determined by the eventual issue price. Therefore, the Rs 7,200 crore estimate for the five insurers represents a potential value based on the assumed Rs 1,800 per-share price rather than a confirmed amount.
The proposed sale could nevertheless prove particularly significant for state-owned general insurers that have been working to strengthen their financial position.
NSE Holdings Could Strengthen Solvency Buffers
The remaining NSE shares could become an important source of value for some of the insurers after the IPO.
National Insurance, United India Insurance and Oriental Insurance collectively own about 90 million NSE shares. Following the proposed sale of roughly 17 million shares, they are expected to retain around 73 million shares.
At an NSE valuation of Rs 1,800 per share, those remaining holdings would be worth approximately Rs 13,100 crore. A subsequent mark-to-market revaluation after NSE’s listing could therefore generate further gains on their balance sheets.