The Government is likely to consider 20% investment in Life Insurance Corporation (LIC) for the much awaited initial public offering (IPO). Sources say foreign participation would be allowed as per the listing norms of the Securities and Exchange Board of India (Sebi) and the extant sectoral FDI guidelines.
The IPO of LIC would also be guided by the IRDAI capital regulations. To facilitate the listing of LIC, the government had earlier this year made amendments to the Life Insurance Corporation Act, 1956. According to the amendment, the central government will hold at least 75% in LIC for the first five years post the IPO, and subsequently hold at least 51% at all times after five years of listing. As per the amended legislation, the authorized share capital of LIC shall be Rs 25,000 crore divided into 2,500 crore shares of Rs 10 each. Up to 10% of the LIC IPO issue size would be reserved for policyholders.
A source, as per Bloomberg report, a plan is under discussion to amend FDI rules so that investors can pick up the stake without the government’s approval under the so-called automatic route. It should be noted that while FDI of as much as 74% is allowed in most Indian insurers, the rules don’t apply to LIC because it is a special entity created by an act of parliament. Moreover, the RBI defines FDI as purchase of a stake in a listed company that’s 10% or larger by an individual or entity based abroad, or any foreign investment in an unlisted firm. As such, the clearance for FDI in LIC does not allow global funds to participate in the IPO. But it allows for a significant stake purchase after listing.
Once listed, LIC is likely to become one of the biggest domestic companies by market capitalization with an estimated valuation of Rs 8-10 lakh crore. The Department of Investment and Public Asset Management (DIPAM) has selected actuarial firm Milliman Advisors for ascertaining the embedded value of LIC for meeting the government’s disinvestment target.
Last month, DIPAM appointed 10 merchant bankers including Goldman Sachs (India) Securities, Citigroup Global Markets India and Nomura Financial Advisory and Securities (India) to manage the mega initial public offering of the country’s largest insurer. Other selected bankers are SBI Capital, JM Financial, Axis Capital, BofA Securities, JP Morgan India, ICICI Securities and Kotak Mahindra Capital Co. Ltd.