LIC IPO: Increased Surplus Transfer to Shareholders Will Not Impact Policyholders

LIC’s initial public offering is set to be the biggest IPO ever in India, with an issue size ranging between Rs. 80,000 to 1,00,000 crores. This public offering is scheduled for March 2022.

According to DIPAM secretary Tuhin Kanta Pandey, bonuses promised to policyholders will remain unaffected after the listing, even as the yearly surplus transfer to policyholders will drop from 95% to 90%. This is usually the case in the private insurance industry.

The Department of Investment and Public Asset Management secretary adds that policyholders will be taken care of as there won’t be any reduction in bonuses.

A Close Look into the Matter

Till now, Life Insurance Corporation had been paying 95% of its surplus to its policyholders while the remaining 5% to the government. However, the government has carried out some modifications in various policies ahead of LIC’s mega IPO.

With the Finance Act 2021, the government tweaked Section 28 of the LIC Act, thereby changing the ratio of policyholders and shareholders to 90:10 after it becomes a joint-stock entity. As per IRDAI regulations, all shareholders are entitled to receive 10% of the surplus.

This mega IPO of Life Insurance Corporation India will come with a combination of about 10% offloading of shares by the government along with the issuance of fresh equity. LIC will use the proceeds from its public offering to facilitate business expansion plans.

LIC’s valuation is somewhat around Rs. 8 to 11.5 lakh crores which means a sale of a 10% stake by the government would generate nearly Rs. 80,000 to 1 lakh crores. However, the DIPAM secretary says that the exact size of the LIC IPO will be fixed after conducting a valuation exercise. He also says that LIC will file its DRHP around December once it prepares its book of accounts up to September.

About the Company

LIC (Life Insurance Corporation of India) is the biggest as well as the oldest insurance company in India. It came into existence with the LIC Act of 1956. It is one of the most trusted insurance companies with more than 290 million policyholders.

LIC comes with a huge variety of policies such as special plans, pension plans, unit plans, health plans, and much more. Starting with only Rs. 5 crores as a government contribution, LIC has touched Rs. 31 lakh crores today in terms of asset value.

Apart from its pan India presence, LIC also operates in 14 international countries, including Kenya, Singapore, UAE, UK, Nepal, Bangladesh, Kuwait, Oman, and more.

What are the Objectives?

LIC would be using the proceeds from its initial public offering for these purposes:

• To finance corporate expenses
• To meet working capital requirements
• For financing expansion plans

Bottom Line

The central government has set a disinvestment plan of Rs. 1.75 lakh crore by the fiscal year 2022. Out of this, it aims to raise Rs. 75,000 crores through privatising BPCL. The remaining Rs. 1 lakh crores will come from the disinvestment of public sector entities such as LIC and banks. Thus, LIC IPO is highly essential for the government to reach its disinvestment target within a stipulated time.

There isn’t much information available right now regarding the timeline of this IPO. LIC is yet to file its DRHP. However, to stay updated with the latest developments in IPO, stock markets, and investment, make sure to follow Angel One blogs.

Frequently Asked Questions

1. When is the LIC IPO coming?

LIC IPO is expected to launch in March 2022. The opening and closing dates are not yet finalised.

2. Who is the pre-initial public offer transaction advisor for LIC IPO?

The government of India has appointed Deloitte as the pre-initial public offer transaction advisor.

3. Where is LIC IPO listed?

The details about LIC IPO are not yet available.