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LIC may be asked to buy govt stake in PSUs

01 Dec 2011 Evaluate

The Finance Ministry is likely to ask Life Insurance Corporation of India (LIC) to buy 5-10% of government stake in PSUs as part of the exercise to raise Rs 40,000 crore through disinvestment. The cash-rich LIC had earlier said that it has earmarked over Rs 40,000 crore for investment in equities in public and private sector companies in the current fiscal. LIC is the largest domestic institutional investor in the Indian market. The government has fixed a mammoth Rs 40,000 crore disinvestment target for the current fiscal. However, with eight months over, it has only been able to mop up Rs 1,145 crore.

In order to meet the target, the government is mulling innovative measures, like buyback and cross-holding. Under the buyback mode, the government can raise money by selling its equity in the company to the concerned PSU itself. The Department of Disinvestment (DoD) has already floated a Cabinet note which seeks to ask cash rich companies to buy-back shares in PSU peers. The government has been thinking of raising funds through the buyback route as it has not been able to raise money through sale of equity in public sector units on account of uncertainty in the stock markets.

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