LIC IPO: Finance Minister Nirmala Sitharaman reviews progress

The much awaited LIC IPO, announced in Budget last year, is expected by March, where a portion of between 5% to 10% of the state-owned insurer is expected to be sold. The government is seeking a valuation of as much as ₹10 trillion ($133 billion), setting a local record and potentially making it among the biggest listings involving an insurer anywhere in the world.

However, according to various reports, there are still some issues that need to be addressed with regard to the valuation of LIC that may push the public issue beyond FY22.

DIPAM Secretary expressed confidence that IPO plans of LIC is on course and it would happen in the January-March quarter of 2021-22. Valuation of LIC is a complex process because of its size, product mix, real estate assets, subsidiaries and profitability sharing structure, and the size of share sale depends on the valuation.

The government is banking on the listing of LIC IPO and BPCL strategic sale for meeting its disinvestment target of ₹1.75 lakh crore.

The Cabinet Committee on Economic Affairs (CCEA) had in July given its in-principle approval for the listing of LIC. The government has already appointed 10 merchant bankers for the transaction.

To facilitate the listing of LIC, the government earlier this year made about 27 amendments to the Life Insurance Corporation Act, 1956.

As per the amendment, the central government will hold at least 75 per cent in LIC for the first five years post the IPO, and subsequently hold at least 51 per cent at all times after five years of the listing.

The authorised share capital of LIC shall be ₹25,000 crore divided into 2,500 crore shares of ₹10 each, as per the amended legislation. Up to 10% of the LIC IPO issue size would be reserved for policyholders.

Currently, the government owns 100% stake in LIC.

Once listed, LIC is likely to become one of the biggest domestic companies by market capitalisation with an estimated valuation of ₹8-10 lakh crore.

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 for ascertaining the embedded value of LIC for meeting the government’s disinvestment target.

Meanwhile, the commerce and industry ministry is making changes in the foreign direct investment (FDI) policy to facilitate disinvestment of the country’s largest insurer LIC, after taking views from the finance ministry.

According to the current FDI policy, 74% foreign investment is permitted under the automatic route in the insurance sector. However, these rules do not apply to the LIC, which is administered through a separate LIC Act.