Setting the stage for the country's biggest ever public offering, Life Insurance Corporation on Sunday, February 13, filed draft papers with capital market regulator SEBI for the sale of 5% stake by the government for an estimated Rs 63,000 crore. The initial public offering of over 31.6 crore shares or 5% government stake is likely to hit the D-street in March and employees and policy holders of the insurance behemoth would get a discount over the floor price.
According to the draft red herring prospectus, LIC's embedded value, which is a measures of the consolidated shareholders value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors. Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would about 3 times the embedded value or around Rs 16 lakh crore.
"The DRHP of LIC IPO has been filed today with the SEBI. For filing valuation about 31.6 crore shares are on offer representing 5 per cent equity," Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey tweeted. Merchant banking sources said the government is expecting to garner up to Rs 63,000 crore (about $8 billion) from the IPO.
The IPO is offer for sale (OFS) by the Government of India and no fresh issue of shares by Life Insurance Corporation (LIC). The Government holds 100% stake or over 632.49 crore shares in LIC. The face value of shares is Rs 10 apiece.
The LIC IPO would be the biggest IPO in the history of Indian stock market and once listed LIC's market valuation would be comparable to top companies like RIL and TCS. So far, the amount mobilised from IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.
LIC has 66% market share in new business premiums with 283 million policies and 1.35 million agents as of March 31, 2021, Pandey added. The Government, however, did not disclose in the DRHP the discount which will be given to policyholders or LIC employees in the public offering. As per norms, up to 5% of issue size can be reserved for employees and up to 10% for policyholders.
The IPO of LIC is expected by March and the proceeds would be crucial to meet the revised disinvestment target of Rs 78,000 crore in the current fiscal. So far, the government has raised Rs 12,030 crore through CPSE disinvestment and Air India strategic sale this fiscal.
Life Insurance Corporation (LIC) share capital was raised from Rs 100 crore to Rs 6,325 crore during September last year to help facilitate IPO. Last month, LIC 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 554.1% in the first half of 2021-22, compared with 394.76% during the year-ago period.
There are currently 24 life insurance companies in India, with LIC being the sole public player. The size of the Indian life insurance industry was Rs 6.2 lakh crore on a total-premium basis in fiscal 2021, up from Rs 5.7 lakh crore in fiscal 2020. The government has appointed 10 merchant bankers, including Kotak Mahindra Capital, 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 IPO of the country's largest insurer.
The government 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. FDI policy would have to be tweaked for FII/FPI investment in this IPO, as LIC is a corporation and not an insurance company. The Cabinet Committee on Economic Affairs had in July last year cleared the proposal for LIC's IPO.
Union Govt mulls permitting direct investment LIC