LIC IPO: The government is set to file the draft papers for the mega initial public offering of LIC with market regulator Sebi this week and if officials are to be believed the issue is expected to be launched in March. The much-awaited LIC IPO may be launched with a discount for its policyholders. The size of the issue would be mentioned in the DRHP. Up to 10 per cent of the LIC IPO issue size would be reserved for policyholders.
LIC IPO: Swift Review Process
The Securities and Exchange Board of India (SEBI) has been urged to complete its vetting process in less than three weeks instead of the 75 days it usually requires, they said, Reuters reported, quoting two government sources with knowledge of the matter. “We have 10 bankers for the deal. They are available 24/7 for any questions SEBI might have,” said one of the government officials, adding that a “clean” draft prospectus would be submitted, the Reuters report says.
LIC IPO: Market Share
LIC has a majority share of the life insurance market in India. The government, which hopes to raise as much as $12 billion from selling a stake in the IPO, expects the proceeds will help it bridge a deficit gap this fiscal year.
LIC is not only the world’s largest when it comes to home-market share with over 64.1 per cent of the total gross written premium as of 2020 but also the one that offers the highest return on equity at 82 per cent, apart from being the third largest in terms of life insurance premium, says a Crisil report.
LIC IPO: Financials
LIC has reported a profit after tax of Rs 1,437 crore for the first half of the financial year 2021-22 as compared with Rs 6.14 crore in the year-ago period. Its new business premium growth rate stood at 554.1per cent in H1FY22, compared with 394.76 per cent during the corresponding period of the preceding financial year.
In terms of total assets, LIC is the sixth largest with $522 billion clipping at 8 per cent annually between 2019 and 2021. LIC’s growth comes amidst the continued decline of its peers elsewhere as in 2020, the global life insurance market contracted by 3.1 per cent to $2.79 trillion from $2.88 trillion in 2019 due to the pandemic.
LIC IPO: Who Gets How Much?
Under the current plans, the government would keep its majority of its stake in the LIC. The stake cannot come below 51 per cent by law and that will be retained and even in 5 years it could not sell more than 25 per cent of its stake in LIC.
LIC IPO: Foreign Investors to Pick Stake?
The government is in the process of deciding the quantum of its stake that will be divested through the IPO, according to PTI report. It is also mulling allowing foreign investors to pick up stake in LIC. As per Sebi rules, foreign portfolio investors (FPI) are permitted to buy shares in a public offer. However, since the LIC Act has no provision for foreign investments, there is a need to align the LIC IPO with Sebi norms regarding foreign investor participation, the PTI report says.
LIC IPO: Who are Merchant Bankers?
The government in September last year appointed 10 merchant bankers, including Goldman Sachs (India) Securities Pvt Ltd, Citigroup Global Markets India Pvt Ltd and Nomura Financial Advisory and Securities (India) Pvt Ltd, to manage the mega initial public offering of the insurance behemoth.
Other selected bankers include SBI Capital Market Ltd, JM Financial Ltd, Axis Capital Ltd, BofA Securities, JP Morgan India Pvt Ltd, ICICI Securities Ltd, and Kotak Mahindra Capital Co Ltd. Cyril Amarchand Mangaldas has been appointed as legal advisor for the IPO.
LIC IPO: Embedded Value
The embedded value of LIC has been arrived at and it is over Rs 5 lakh crore, informed DIPAM
LIC IPO: Why is it Crucial?
LIC IPO is crucial for meeting the disinvestment target set for the current fiscal ending March 2022. The Budget for 2021-22 has set a disinvestment target of Rs 1.75 lakh crore, as against Rs 32,835 crore garnered in the last fiscal. Of the Rs 1.75 lakh crore, Rs 1 lakh crore is to come from selling government stake in public sector banks and financial institutions, and Rs 75,000 crore will be CPSE disinvestment receipts. So far this fiscal, Rs 9,330 crore has been mopped up through minority stake sale in PSUs.