The much-awaited LIC IPO, announced in the budget last year, is expected to come by March, where between 5% and 10% of the state-owned insurer’s stake is expected to be sold. The government is demanding as much evaluation as possible ₹10 trillion ($133 billion), setting a local record and potentially making it the largest listing involving an insurer anywhere in the world.
However, as per various reports, there are still some issues that need to be addressed with respect to the valuation of LIC which may take the public issue beyond FY22.
DIPAM Secretary expressed confidence that LIC’s IPO plans are underway and it will happen in the January-March quarter of 2021-22. Valuation of LIC is a complex process due to its size, product mix, real estate assets, subsidiaries and profitability sharing structure, and the size of the share sale depends on the valuation.
Government banking on listing of LIC IPO and BPCL strategic sale to meet its disinvestment target ₹1.75 lakh crores.
The Cabinet Committee on Economic Affairs (CCEA) in July gave in-principle approval for listing of LIC. The government has already appointed 10 merchant bankers for the transactions.
Earlier this year, the government made about 27 amendments to the Life Insurance Corporation Act, 1956 to ease the listing of LIC.
As per the amendment, the central government will hold at least 75 per cent stake in LIC for the first five years after the IPO, and subsequently at least 51 per cent at all times after five years of listing.
The authorized share capital of LIC will be ₹25,000 crore divided into 2,500 crore shares ₹10 each, as per the amended law. Up to 10% of the LIC IPO issue size will be reserved for policyholders.
At present, the government has 100% stake in LIC.
Once listed, LIC has the potential to become one of the largest domestic companies by market capitalization with an estimated valuation of ₹8-10 lakh crores.
The Department of Investment and Public Asset Management (DIPAM), which manages the government’s equity in state-owned companies, has selected actuarial firm Milliman Advisors to ascertain the embedded value of LIC to meet the government’s disinvestment target. has done.
Meanwhile, the commerce and industry ministry, after taking a view from the finance ministry, is making changes in the foreign direct investment (FDI) policy to facilitate disinvestment of the country’s largest insurance company LIC.
As per the current FDI policy, 74% foreign investment is allowed in the insurance sector under the automatic route. However, these rules do not apply to LIC, which is administered through a separate LIC Act.
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