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Government to Divest 6.78% Equity Stake in GIC Re

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Synopsis:

The Indian government will divest a 6.78% stake in GIC Re, including a green shoe option, to raise around Rs 4,700 crore. The OFS is set at a floor price of Rs 395, offering a discount to the market price.

The Indian government has announced plans to divest a 6.78% stake in General Insurance Corporation of India (GIC Re), a leading public-sector reinsurance company. The move, expected to raise approximately Rs 4,700 crore, is being executed through the offer-for-sale (OFS) route, marking the first such stake sale since the company's listing in 2017.

Details of the offer-for-sale

The offer-for-sale will begin on Wednesday, with non-retail investors having the initial opportunity to place their bids. Retail investors and GIC Re employees will be able to participate on Thursday. The OFS will involve the sale of a 3.39% equity stake in GIC Re, with an additional 3.39% equity available through a green shoe option, according to the Secretary of the Department of Investment and Public Asset Management (DIPAM).

Pricing and market response

The floor price for the OFS has been set at Rs 395 per share, offering a discount of approximately 6% compared to the current market price. On Tuesday, GIC Re's share price closed at Rs 420.8, reflecting a 1.4% decline. The government’s decision to divest comes as part of its broader strategy to reduce its stake in public-sector companies and to generate funds for various initiatives.

Government's stake and future plans

Currently, the government holds an 85.78% stake in GIC Re. The proposed divestment is seen as a move to streamline the government's holding in line with previous strategies, such as the one employed during the Life Insurance Corporation (LIC) of India's initial public offering (IPO). In that instance, the government successfully divested 3.5% of its stake, with plans for further sales to include LIC in index funds.

Earlier this year, GIC Re's Chairman and Managing Director, Ramaswamy Narayanan, indicated that the government might consider divesting a further 10% stake in the reinsurer after the upcoming general elections. However, no specific timeline has been provided for this potential future sale.

The government's decision to dilute its stake in GIC Re reflects its ongoing efforts to optimise public sector holdings while generating capital. With the OFS set to commence shortly, market participants will closely monitor investor response to this significant divestment move.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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