State-owned LIC is considered a strategic asset, commanding over 60% of India’s life insurance market with assets of over $500 billion. Sources said the government is planning to allow foreign investors to participate in the country’s biggest ever IPO, which is expected to be valued at $12.2 billion, but that is Chinese-owned.
Political tension between the countries escalated last year after its troops clashed on the disputed Himalayan border and since then, India has sought to limit it. Chinese investment In sensitive companies and sectors, Chinese mobile apps were banned and the import of Chinese goods for additional scrutiny.
“It may not be business as usual with China after the border conflict. The trust deficit has widened significantly (ed),” said one of the government officials. Chinese investment in companies like LIC can pose risks.
Discussions on how Chinese investments could be halted declined to be identified and no final decision has been taken.
India’s finance ministry and LIC did not respond to Reuters’ emailed requests for comment. China’s foreign ministries and commerce did not immediately respond to requests for comment.
Aiming to address the budget shortfall, Prime Minister Narendra Modi’s administration is hoping to raise Rs 900 billion by selling 5% to 10% of LIC’s in this financial year ending in March. Sources said the government is yet to decide whether it will sell a tranche of shares or seek funds in two tranches to raise the entire amount.
Under the existing law, no foreign investor can invest in LIC, but the government is considering allowing foreign institutional investors to buy up to 20% of LIC’s offering.
Two government officials said options to stop Chinese investment in LIC include amending the existing law on foreign direct investment with a clause relating to LIC or enacting a new law for LIC.
He said the government is conscious of the difficulty in curbing Chinese investment that can come indirectly and will try to formulate a policy that will protect India’s security but not deter foreign investors.
A third option is being explored, a government official and banker said, which is preventing Chinese investors from becoming cornerstone investors in IPOs, although it will not prevent Chinese investors from buying shares in the secondary market.
Ten investment banks including Goldman Sachs, Citigroup and SBI Capital Markets have been selected to handle the offering.