The government revealed plans to launch an initial public offering (IPO) of Life Insurance Corporation of India (LIC) in its 2020 budget. The DRHP of LIC IPO was filed on 13th Feb. The government is offering 31.62 crore shares or 5% of the equity in the IPO, according to the filing with the Securities and Exchange Board of India. The Centre aims to come out with the IPO and subsequent listing of LIC on bourses by March 2022.
LIC IPO SEBI approval came on March 9.
The purpose of this IPO is to ensure more discipline, transparency in the company’s operations and give retail investors a chance to invest in the company.
A public offering does not signify LIC’s privatization as privatization and listing are different things. The government plans to sell a part of its stake through this IPO. Here are some important details about the IPO:
What is the LIC IPO?
LIC has always been a government-controlled entity. An IPO occurs when a company decides to go public i.e. list on the stock exchange.
Here are a few things you should know about before investing in LIC IPO shares:
- Ms. Nirmala Sitharaman, India’s finance minister, first announced the disinvestment of equity in LIC in the Union Budget 2020.
- An amendment has been made in the LIC Act,1956 to facilitate the roll-out of IPO. The amendment indicates that LIC will become a listed company and prepare quarterly earnings reports and balance sheets. Moreover, any developments within the company will have to be made public post the IPO.
- LIC has asked its policyholders to update their Permanent Account Number (PAN) and make sure that they have valid DEMAT accounts so that they can participate in the proposed public offer.
- Global investors including BlackRock and Blackstone have reportedly shown interest in the anchor issue of the proposed IPO.
- Mr. Arijit Basu, the former MD of State Bank of India and the former MD and CEO of SBI Life Insurance, has been recruited as a consultant to help with the launch. Deloitte and SBI Capital are among the pre-IPO advisors.
- Whereas Milliman Advisor LLP India, an actuarial firm, is in charge of calculating the embedded value of the company.
- KFintech, a Hyderabad-based company, has been appointed as registrar and share transfer agent. Meanwhile, Mumbai-based Concept Communications has been chosen as the advertising agency.
- Currently, the total valuation of the public offering is estimated to be around Rs. 70,000 to Rs 1 lakh crore. LIC IPO price band will be decided in due course, two days before the opening of the public offer, according to the prospectus.
- According to the draft prospectus, LIC has an embedded value of Rs 5,39,686 crore as on Sept. 30, 2021. The insurer has for the first time released its embedded value, an actuarial measure for valuing a life insurer.
- The embedded value takes into account the adjusted net worth of the life insurer including free surplus and capital, coupled with the discounted value of future profits from in-force policies.
- As per DRHP, LIC has said as of September 2021, its assets under management (AUM) stood at Rs 39.6 lakh crore.
- LIC has a 66% market share in New Business Premiums with 283 million policies and 1.35 mn agents as of 31st March 21.
- LIC has sought exemption from SEBI on deposits with exchanges for its upcoming IPO. Companies that go for an IPO have to deposit an amount equivalent to 1% of the issue size with stock exchanges, which is returned to the issuer after the share sale.
- Out of a total of 18 banks, both domestic and international, only 10 were selected to manage the IPO.
- They were chosen based on their knowledge of life insurance, marketing strategies, and their experience in retail and international distribution.
Below is a list of some of the banks that were shortlisted as book-running lead managers or BRLMs for the IPO:
- Goldman Sachs Group Inc
- ICICI Securities Ltd
- Kotak Mahindra Capital Co
- JP Morgan Chase & Co
- JM Financial Ltd.
- Citigroup Inc
- Nomura Holdings Inc
- Axis Capital
- DSP Merill Lynch
- SBI Capital Markets
Also Read, How to Apply for LIC IPO as a Policyholder
Currently, the allocation of the IPO includes the following:
The government will hold a majority stake even after the IPO.
Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said the IPO is 100% OFS (offer for sale — which means that the proceeds will go fully towards the government and help it reach its disinvestment target) by the Government of India, and that no fresh issue of shares will be made by LIC.
The Employee Reservation Portion will not exceed 5% of our post-offer Equity Share capital. The Policyholder Reservation Portion shall not exceed 10% of the offer size.
The policyholders may even be able to get a discount on the offer price.
LIC is keeping aside 35% of the offering, or nearly 11.1 crore shares, for retail investors.
A portion of the IPO will be reserved for anchor investors. The Corporation may allocate up to 60 percent of the QIB (qualified institutional buyers) portion to anchor investors on a discretionary basis. One-third of the anchor investor portion will be reserved for domestic mutual funds.
Final thoughts on LIC IPO Launch Date
The draft red herring prospectus of the IPO has been released but we still don’t know about the LIC IPO date 2021 or any other details of the IPO. There is no final confirmation for the LIC IPO date 2022 by the government. It is expected to be launched in the first half of the financial year 2022.
Many government officials have been quoted saying the LIC IPO 2022 will happen by the end of March this year.