Market regulator SEBI, according to sources, has approved Life Insurance Corporation’s (LIC) massive IPO proposal, which will enable the government to raise around Rs 63,000 crore to fulfill the government’s disinvestment objective for the current fiscal year. The approval from the Securities and Exchange Board of India (SEBI) came in less than a month, the fastest approval ever given to any company in India.
LIC filed its draft red herring prospectus (DRHP) on February 13, 2022. According to the DRHP, the initial public offering (IPO) would comprise the sale of 31.6 crore shares, or a 5 percent shareholding in the government. Employees and policyholders of the insurance giant would also be qualified for a discount off the floor price.
Milliman Advisors, an international actuarial consultancy, has projected LIC’s embedded valuation, which is a measure of the consolidated shareholders’ worth in an insurance company, to be at Rs 5.4 lakh crore as of September 30, 2021. Although the DRHP does not reveal the LIC’s market valuation, according to industry standards, it would be around three times the embedded value, or roughly Rs 16 lakh crore.
The IPO is an offer for sale (OFS) by the Government of India, and LIC will not issue new shares The government owns 100 percent of LIC or approximately 632.49 crore shares. Shares have a face value of Rs 10 each. The LIC IPO is said to be the biggest in Indian stock market history, and once listed, LIC’s market capitalization would be equivalent to top corporations such as Reliance Industries Ltd. and TATA Consultancy Services. So far, the amount raised from Paytm’s IPO in 2021 has been the most in history, at Rs 18,300 crore, followed by Coal India in 2010 at around Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.
Employees can receive up to 5 percent of the issue size and policyholders can receive up to 10 percent, according to industry standards. The LIC IPO is anticipated to take place in March, and the proceeds will be important in fulfilling the revised disinvestment objective of Rs 78,000 crore for this fiscal year. This fiscal year, the government has picked up Rs 12,030 crore through CPSE disinvestment and Air India’s strategic sale to TATA Group.
To facilitate the IPO, LIC’s share capital was increased from Rs 100 crore to Rs 6,325 crore in September of last year. LIC posted a profit after tax of Rs 1,437 crore for the first half of 2021-22, up from Rs 6.14 crore the previous year. Its new business premium growth rate was 554.1 percent in the first half of 2021-22, compared to 394.76 percent the previous year. There are presently 24 life insurance companies in India, with LIC being the single public player. The Indian life insurance sector was worth Rs 6.2 lakh crore in total premiums in fiscal 2021, up against Rs 5.7 lakh crore in fiscal 2020.