LIC’s listing is crucial for the government to meet the lowered revenue estimates of Rs 78,000 crore for the current fiscal.
New Delhi: A day after Union Finance Minister Nirmala Sitharaman announced that Initial Public Offering (IPO) of Life Insurance Corporation of India (LIC) is expected shortly, a top official said that the government at the Centre has received the LIC valuation report and will file a draft red herring prospectus (DRHP) for its much-awaited IPO within a week with an offering of at least 5% stake. The official said that the government will file draft papers with market regulator Sebi by next week, while a portion of the issue would be reserved for anchor investors.
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As per a report in ET NOW, the government may look to offload 5 % stake initially for Rs 65,000 crore to Rs 75,000 crore, which will meet the revised divestment target of Rs 78,000 crore for FY22. So far, the government has fetched little over Rs 12,000 crore from divestments this fiscal.
During an interview, Tuhin Kanta Pandey, Secretary to the Department of Investment and Public Asset Management (DIPAM), said a minimum of 5% of LIC’s shares would be sold through the largest-ever initial public offering in India. However, details related to the size of the share sale will be announced and the draft prospectus will be filed after approval of the insurance regulator.
The issue, after approval of Sebi, is likely to hit the market in March, he said. LIC’s listing is crucial for the government to meet the lowered revenue estimates of Rs 78,000 crore for the current fiscal.
The government has so far raised about Rs 12,000 crore from privatisation of Air India and stake sale in other PSUs. Finance Minister Nirmala Sitharaman in her 2022-23 Budget speech had said: “The public issue of the LIC is expected shortly.”
Pandey said the embedded value of Life Insurance Corporation (LIC) has been arrived at and it has to now get clearance from insurance regulator IRDAI.
“Within 7-10 days, the DRHP (Draft Red Herring Prospectus) for LIC IPO will be filed. Informally, we have been consulting Sebi on various issues. The size of the issue would be mentioned in the DRHP,” he said.
The government aims to come out with the initial public offer (IPO) and subsequently list LIC on the bourses by March, he said. “A portion of the IPO would be reserved for anchor investors as we have done in case of IPOs of IRFC and RailTel,” Pandey added.
Up to 10 per cent of the LIC IPO issue size would be reserved for policyholders. Actuarial firm Milliman Advisors LLP India has worked out the embedded value of LIC, while Deloitte and SBI Caps have been appointed as pre-IPO transaction advisors. Under the embedded value method, insurance companies’ present value of future profit is also included in their present net asset value (NAV).
The government has appointed 10 merchant bankers, including 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.
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Separately, the Department for Promotion of Industry and Internal Trade (DPIIT) is making changes in the FDI policy to facilitate disinvestment of LIC, after taking views from the finance ministry. DPIIT Secretary Anurag Jain said an inter-ministerial consultation on the matter is at its last stage.
“Hopefully, it should happen very soon… All the comments that will come (from different departments) will be supportive (of the proposal),” he told reporters. He also expressed hope that the Cabinet will soon take up this proposal.
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.
