February 27, 2022
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Cabinet allows up to 20% FDI in IPO bound LIC
India’s cabinet approved on Saturday a policy amendment allowing foreign direct investment of up to 20% in LIC, a change aimed at easing the listing of the state-run insurer.
Under current rules, foreign investment is not allowed in the LIC, governed by the special parliament act, while 74% foreign direct investment is allowed in other private insurance companies.
The amendment would allow foreign direct investors to buy up to 20% of LIC’s shares through an automatic route, said the government source, who spoke on condition of anonymity after the cabinet meeting.
India’s biggest insurance company plans to float a stake of 5% to raise about $8 billion next month for India’s largest IPO by far. The cabinet decision comes amid growing fears among some investors that the government could defer public listing of the LIC due to increasing volatility in the market after Russia’s invasion of Ukraine.
Government officials, have however, said that there was no plan to defer the listing of the insurance company – critical for plans to raise funds for budgeted spending.
The amendment would allow the government to raise the foreign direct investment limit in the LIC up to 20%, on par with the rule for state-run banks, the government source said.
In the IPO, the firm will also earmark a certain percentage of shares for policyholders, not exceeding 10% of the offer size, while the portion reserved for employees will not be more than 5% of post-offer equity share capital, according to the IPO filing. LIC employed 114,498 people as of end-March, 2021.
Certain class of investors fear very costly valuation and possibility of lukewarm responce to this mega IPO.
Update of February 13, 2022:
LIC files DRHP for India’s largest IPO, Govt to offload 5% stake,Count down of the ‘mother’ of all IPOs starts !
LIC, at last has filed its DRHP with the SEBI, on Sunday evening.
The issue is completely an offer for sale of 31,62,49,885 equity shares by the promoter, which holds a 100 per cent stake in the insurance behemoth. The President of India, acting through the Ministry of Finance, Government of India, is the promoter.
The government of India is selling a 5 per cent stake in the IPO. The IPO is 100% OFS by GOI and no fresh issue of shares by LIC.
50 per cent of the IPO is reserved for QIBs , whereas NIIs will have 15 per cent of shares allocated for them. One third of the anchor portion will be reserved for the domestic mutual funds, it added.
The retail portion has been fixed at 35 per cent of the offer. The issue is likely to have reservations for eligible employees and policyholders of the company. The company may allot shares at a discounted rate to the policyholders. It has more than Rs 34.3 trillion worth of life funds.
Actuarial firm Milliman Advisors LLP India had worked out the embedded value of LIC, while Deloitte and SBI Caps are appointed as pre-IPO transaction advisors.
Established in 1888, the insurance player has assets worth Rs 44 trillion as of the Financial Year 2020-21.LIC has over 29 crore policyholders, having a separate quote for them if the policy is linked to their PAN Card. LIC has 66% market share in New Business Premiums with 283 mn policies and 1.35 mn agents as of 31st March 21.Embedded value of LIC as on 30th Sep 21 is Rs 5,39,686 cr(about INR 5.4 trillion)
LIC Investment Portfolio:
Overall, LIC held a total of Rs 9,78,493.81 crore worth equity investments as of September 30, representing 24.78 per cent of the total Rs 39,49,516.37 crore worth of investments. It holds a negligible proportion of its investments in unlisted equity and other investments, which are not readily tradable on the market.
Book running lead managers for the LIC IPO:
Kotak Mahindra Capital Company, Axis Capital, BofA Securities India, JM Financial, Goldman Sachs (India) Securities, ICICI Securities, Citigroup Global Markets India, JP Morgan India, Nomura Financial Advisory and Securities (India) and SBI Capital Markets are the
Registrar for the LIC IPO
KFin Technologies
Listing proposed on : NSE and BSE.
