The LIC board of directors will meet soon to deliberate on the planned IPO

According to sources, the board of the Life Insurance Corporation of India will meet on 11th February to discuss the insurer’s planned listing, paving the way for the country’s largest initial public offering.

Following board approval, the draft red herring prospectus (DRHP) for the planned IPO will be submitted. “Key choices on how much of a discount would be granted to policyholders in the future issue may also be decided during the meeting tomorrow (Friday),” analysts added.

The insurance regulator has approved the listing, and a formal notification is due shortly, according to another source. The country’s largest life insurer may provide its policyholders up to a 5% discount and set aside up to 10% of the issue size for them. LIC’s government is expected to sell a 5-10% interest in the company, depending on its worth.

The secretary of the Department of Investment and Public Asset Management (DIPAM) indicated in a post-budget meeting last week that the DRHP will be submitted this week.

Government focusing on the target of divestment

The approval of the Insurance Regulatory and Development Authority of India is anticipated any day now. The LIC IPO will provide the market with a lot of depth. In addition, it will attract new investors to the market. The offer price is anticipated to be set swiftly once the DRHP is filed, as the government is eager to put the public issue to market this fiscal year.

The government set a disinvestment goal of Rs 65,000 crore in the fiscal 2023 budget, which was released last week. It also reduced the objective for the current fiscal year from Rs 1.75 lakh crore to Rs78,000 crore.

This fiscal year, stake sales have generated a total of Rs 12,029 crore. The government’s increased disinvestment objective for the year is anticipated to be met thanks to the PSU insurer’s public offer, which is projected to be the largest ever in India.

Foreign investors will be permitted to participate in the IPO, with the government planning to modify the foreign direct investment rules before the public offering. Foreign investment is not included in the LIC Act, which oversees the insurer, and any shareholder other than the central government is limited to a 5% interest. The government has hired ten merchant bankers to oversee the LIC problem, including Goldman Sachs Group, JP Morgan Chase & Co, and ICICI Securities.

Milliman Consultants LLP India has been hired to examine the LIC’s inherent value, while Deloitte and SBI Caps have been hired as pre-IPO transaction advisors. The proposal for LIC’s initial public offering (IPO) was approved by the Cabinet Committee for Economic Affairs in July of last year.

Market dominance

The life insurance sector in India is dominated by LIC. The government expects the proceeds from selling a piece of the IPO, which may bring in up to $12 billion, to help them narrow a budget deficit this fiscal year.

According to a Crisil research, LIC is not only the world’s largest in terms of home-market share, accounting for over 64 percent of total gross written premium in 2020, but also the one with the highest return on equity, at 82.1 percent, and the third largest in terms of life insurance premium.

Foreign investors to choose a stake

According to reports, the government is considering how much of its ownership in the company would be sold via the IPO. It is also considering allowing foreign investors to purchase LIC shares. Foreign portfolio investors (FPIs) are allowed to acquire shares in a public offering under SEBI guidelines. Due to the lack of provisions for international investors under the LIC Act, the LIC IPO must adhere to SEBI guidelines on foreign investor participation.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.