Ahead of a massive initial public offering (IPO) of a life insurance company (LIC) scheduled for the March quarter of the current fiscal year, the government is likely to agree a 20% foreign investment limit in low-income equity, an enabling clause designed to attract foreigners. Investors in the IPO. However, the full use of the foreign investment limit will take a long time.
According to the amendment of the LIC Act through the Finance Act 2021, the government can only dilute 25% of its stake in LIC in the first five years and government shares will not drop below 51% at any time. “So 49% of the overall flotation in LIC is a long way to go,” an official familiar with the matter told FE.
The listing of LIC, which will be India’s largest IPO ever, is expected in March 2022. The IPO could include offloading up to 10% of the government stake and some new share issuance by the insurer for business expansion plans. In the IPO, there will be a reservation of about 35% for retail investors, 50% for qualified institutional bidders (the bank) and 15% for non-institutional investors (high net worth individuals, Hindu undivided family, etc.). Foreign investors come in the bank category which includes domestic institutional investors as well. Subsequently, foreign investors can buy LIC shares from the secondary market.
The size of the subscription will be determined after the evaluation process is completed. The accounting transition (rewriting of the books of accounts in accordance with the Companies Law) is also underway. The DRHP will be introduced after the ledgers are ready until September…by December and January,” Secretary of Investment Management and General Asset Management (DIPAM) Tohin Kanta Pandey told FE recently.
While the valuation of the insurer will be known near the list, it is believed to be worth Rs 8-11.5 crore, which means a sale of a 10% stake could fetch the government around Rs 80,000-100,000 crore.
From the divestment target of Rs 1.75 thousand crore for FY22, the center has budgeted Rs 75,000 crore from the privatization of some companies like BPCL and sales of minority stakes in CPSEs and another Rs 1 crore from divestment from the government’s stake in “public sector financial sector” enterprises “(Read LIC) and banks. Therefore, the LIC IPO is critical if the government is to approach its FY22 divestment target.