With this IPO, the government is looking to divest its 3.5% stake in the insurer by selling 22.13 crore shares.

LIC building
Money LIC Wednesday, April 27, 2022 - 15:14

The country's largest life insurer LIC on Wednesday set the price band at Rs 902-949 per share for its Rs 21,000 crore initial public offering (IPO), which will open for subscription on May 4. At the upper end of the price band the government will garner around Rs 21,000 crore. With this IPO, which is through an offer-for-sale (OFS) route, the government is looking to divest its 3.5 per cent stake in the insurer by selling 22.13 crore shares. Here are the details: 

Equity Share

In the IPO, the retail investors and eligible employees will get a discount of Rs 45 per equity share and policyholders will get a discount of Rs 60 per equity share. The issue will open for subscription on May 4 and to close on May 9. The bid lot for the issue would be 15.

Speaking on the occasion, Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said listing of LIC is part of the long-term strategic vision of the government and will highly enhance the value of the corporation in the long-run. "This (LIC IPO) is right sized, considering the capital market environment and will not crowd out capital supply given the current market environment," Pandey said in Mumbai  on Wednesday. Even after the reduced size of about Rs 20,557 crore, LIC IPO is going to be the biggest initial public offering ever in the country, he said. 

LIC profit

According to LIC's revised draft papers for its initial public offering, the insurer booked profit worth Rs 42,862 crore from the sale of investments in the first nine months of the fiscal year 2022. Profit from sale of investments, mainly equity assets, were already 93 per cent of the record profits amassed by LIC of Rs 46,187 crore for the financial year ended March 31, 2021. As of December 2021, LIC’s AUM (Assets under management) was Rs 40.1 trillion, and it is more than 3.2 times higher than the total AUM of all private life insurers in India. 

Divestment

The valuation is based on the the circumstances and need of listing, said MR Kumar, LIC chairperson. He added that further dilution by the government in LIC is still to be discussed and it is unlikely that more will be divested in the near future. How much more government will divest is not decided as of now, he said and added that, “Over a period of time, we should be able to reach a private industry margin of 20-25 per cent.”

Aim of IPO

LIC aims at raising up to Rs 5,630 crore on the upper price band through a pre-IPO placement of shares. Around 59.29 million shares have been reserved for the anchor investor portion, while employee reservation portion is at 1.58 million and policyholder reservation at 22.14 million. Qualified Institutional Buyer portion has been set at 98.83 million. 

The anchor investment will open on May 2. The IPO will open for subscription on May 4 and close on May 9. The basis of allotment will be on May 12 and shares will be credited to the demat accounts on May 16.

LIC files papers with SEBI

The government has also filed papers with SEBI seeking exemption from the 5 per cent stake sale norm, sources said. According to the Securities and Exchange Board of India (SEBI) norms, companies with a valuation of over Rs 1 lakh crore have to sell a minimum 5 per cent stake in the IPO.

LIC's embedded value, which is a measure of the consolidated shareholders value in an insurance company, was pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors. Based on investor feedback, the market value of government-owned LIC has been pegged at 1.1 times its embedded value or Rs 6 lakh crore.

Decision to list

In February, the government had planned to sell a 5 per cent stake in the company. "The decision to list now has taken into account the combination of multiple factors, including market demand, stabilising market conditions, reducing volatility, domestic flows and the corporation's financial performance," DIPAM secretary said.

Pandey said the market is undoubtedly benefiting from strong structural tailwind given concerns in other markets. The market has recovered from temporary shock due to global geopolitical events seen earlier.

He said, "We aren't going to bring in any other FPO for LIC in the next one year." As per SEBI rules, companies can’t carry out a follow-on public offer (FPO) for six months after the IPO.

With PTI inputs

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