General Insurance Corporation of India (GIC) Re is going to have 6.78% of its equity shares diluted, as the Union Ministry of Finance will sell off the stakes for ₹ 4700 crores. On Wednesday, 4 September 2024, the stake sale began with the non-retail investors, while retail investors and GIC Re employees can take part in the share sale from today.
GIC Re Stake Sale Details
In this GIC re-stake sell-off, the government will divest 3.39% of its stake in the reinsurance company while the remaining 3.39% will be available as a green shoe option. The whole stake sale is an offer for sale (OFS) in which the floor price is expected to be around ₹ 395 per share which is at a discount of around 6% from the current market price of GIC Re. As the GIC news came in, the share on Tuesday afternoon closed at Rs/ 420.8 per share declining by 1.4% in that very session. The current market price of GIC Re share price is around ₹ 397.50 per share, in the last five days, the share declined 3.21%.
What is the green shoe option?
If you are wondering, what is a green shoe option then it can be referred to as a provision within an IPO agreement where the issuing company grants permission to the underwriter to sell more shares compared to the number of shares planned to be issued. This provision is utilized when and if there is high demand for the IPO and it is also known as an over-allotment option.
Why Finance Ministry selling Stakes in GIC Re?
Before the beginning of this stake sale, the government held around 85.78% stakes in General Insurance Corporation. The objective behind this stake sale is disinvestment by the government as GIC is not looking to raise capital and they have a strong solvency position as indicated by Ramaswamy Narayanan, Chairman and MD at GIC Re.
On the other hand, GIC Re’s objective is to increase its public shareholder, which was at 14% before this stake sale, and the same needs to be at least 25%.
Wrapping up
Investors looking to buy stakes in GIC Re during this initial public offering (OFS method) should also consider the fundamentals of the company and the industry outlook to make a wise decision.
Source: BusinessStandard
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