LIC IPO

Friends, you all must be reading about govt’s decision of offloading the equity of one of the biggest public sector companies namely Life Insurance Corporation (LIC). There was also news that policyholders of LIC will be offered equity at a lower value than a public offering. Now the stage has been set up for the country’s biggest ever public offering. Yesterday LIC filed Draft Red Herring Prospectus with The Security & Exchange Board of India (SEBI) for the sale of a 5% stake by govt.

The initial public offering of over 31.6 crore shares or 5 % govt stake is likely to hit the market in March 22, and employees and policyholders of LIC would get a discount over the floor price. According to DRHP, LIC’s embedded value, which is a measure of the consolidated shareholders in LIC, has been pegged at about Rs 5.4 lakh crore as of 30th September 2021, by international actuarial firm Milliman Advisors. Although DRHP does not disclose the market valuation of LIC, as per industry standards it would be about 3 times the embedded value or around 16 lakh crore.

It has been confirmed by the Department of Investment and Public Asset Management (DIPAM) that the DRHP of LIC IPO has been filed with SEBI, for 31.6 crore shares, which is about 5% of LIC’s equity. As per Merchant Banking sources, the govt is expecting to garner up to Rs 63,000 Cr from the IPO.

The LIC IPO would be the biggest IPO in the history of  the Indian stock market and once listed LIC market valuation would be comparable to top companies like Reliance Industry Ltd and Tata Consultancy Services. This IPO is offer for sale (OFS) by the Govt of India, and no fresh issues of share by LIC. The Govt of India holds a 100% stake or over 632.49 crore shares in LIC. The face value of the share is Rs 10 apiece.

So far, the amount mobilized from the IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

LIC has a 66 % market share in new business premiums with 283 million policies and 1.35 million agents as of 31^st March 2021.

The Govt, however, did not disclose in the DRHP the discount which will be given to policyholders or LIC employees in the public offering. As per the norms, up to 5% of issues size can be reserved for employees and up to 10% for policy holders.

This IPO of LIC is expected sometime in March 2022, and the proceeds would be crucial to meet the revised disinvestment target of Rs 78,000 crore in the current fiscal year. So far the Govt has raised Rs 12,030 crore through CPSE disinvestment and Air India strategic sale during this fiscal. LIC share capital was raised from Rs 100 crore to Rs 6,325 crore during September last year to help facilitate IPO.

Last month, LIC reported a profit after tax of Rs 1,437  crore for the first half of the financial year 2021-22 as compared to  Rs 6.14 crore in the year ago period. Its new business premium growth rate stood at 554.1% in the first half of 2021-22, compared to 394.76% during the year ago period.

There are currently 24 life insurance companies in India, with LIC being the sole public player. The size of the Indian life insurance industry was Rs 6.2 lakh crore on a total premium basis in fiscal 2021, up from Rs 5.7 lakh crore in fiscal 2020

The Govt is also mulling allowing foreign investors to pick up a stake in LIC. As per SEBI rules, foreign portfolio investors (FPI) are permitted to buy shares in a public offer. Foreign Direct Investment (FDI) policy would have to be tweaked for foreign investment in this IPO, as LIC is a corporation and not an insurance company.

So come March, all the eyes of the financial market will be on the issuance of LIC IPO,  If the Govt is successful in garnering Rs 63,000 crore through this IPO then it will give the boost to Govt’s disinvestment policy, which might lead to disinvestment in more public sector units and corporation.

Friends, waiting for your views on this blog.

Anil Malik

Mumbai, India

14t February 2022