Centre may allow foreign investors in LIC’s IPO but Chinese investors will be blocked

The Indian government is likely to allow foreign institutional investors to buy up to 20% of state-owned Life Insurance Corporation’s IPO, but Chinese investors will be blocked from buying shares, says a government source. LIC’s listing is set to be India’s biggest ever initial public offering, with the government aiming to raise up to $12.2 billion from its stake sale.

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The source told Reuters that it cannot be business with usual with China after the border clashes. “The trust deficit has significantly widened.” He highlighted that Chinese investment in companies like LIC could pose risks.

Political tensions between India and China accelerated in 2020 after their soldiers clashed on the disputed Himalayan border and since then, New Delhi has sought to limit Chinese investment in sensitive companies and sectors, banned a raft of Chinese mobile apps and subjected imports of Chinese goods to extra scrutiny.

Sources believe options to prevent Chinese investment in LIC include amending the current law on foreign direct investment (FDI) with a clause that relates to LIC or creating a new law specific to LIC. They told Reuters that the Indian government was conscious of the difficult in checking on Chinese investments that could come indirectly and would attempt to craft a policy that would protect India’s security but not deter overseas investors. And a third option includes barring Chinese investors from becoming cornerstone investors in IPO.

The government is hoping to raise Rs 900 billion through selling 5% to 10% of LIC this financial year which ends in March. However, the government is yet to decide whether it will sell one tranche of shares seeking to raise the full amount or choose to seek the funds in two tranches.

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It should be noted that while foreign institutional investors are allowed to hold up to 74% of private insurance companies and up to 20% of state-owned banks, they are not permitted to own share in LIC. According to ToI, enabling this would allow foreign pension funds, insurance companies and mutual funds to participate in the IPO of India’s largest life insurer.

Moreover, the government is very much keen to complete the listing this financial year to help with budgetary constraints and late last month selected 10 merchant banks out of the 16 that had bid to kick-start the process.