Govt has time till May 12 to launch LIC IPO without seeking fresh Sebi approval

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The government has time till May 12 to launch the initial public offering (IPO) of LIC without filing fresh papers with market regulator Sebi, an official said.

The government’s sale of about 31.6 crore shares or 5 percent stake in Life Insurance Corporation (LIC), which was estimated to fetch around Rs 60,000 crore to the exchequer, was originally planned to be launched in March, but the Russia-Ukraine crisis has derailed the plans as stock markets are highly volatile.

On February 13, the government filed the draft red herring prospectus (DRHP) for the IPO with Sebi, which granted its approval for the same last week.

“We have a window till May 12 to launch the IPO based on the papers filed with Sebi. We are watching the volatility and will file the RHP giving the price band soon,” an official said.

The DRHP filed with Sebi had details of the financial results of LIC and also the embedded value till September 2021.

If the government misses the May 12 window available with it, LIC would have to file fresh papers with Sebi giving the results of the December quarter and also update the embedded value.

LIC’s embedded value, which is a measure of the consolidated shareholder’s value in an insurance company, was pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors. Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about 3 times the embedded value.

The official further said that although the market volatility has reduced in the last fortnight, it would wait for the market to stabilize further so that retail investors get confidence to invest in the stock. LIC has reserved up to 35 percent of its total IPO size for retail investors.

“The portion reserved for retail investors requires about Rs 20,000 crore to come in from retail buyers. Based on our market assessment, currently, the retail demand is not as much to bid for the entire quota of shares,” the official said.

The government was expecting to garner over Rs 60,000 crore by selling about 31.6 crores or 5 percent stake in the life insurance firm to meet the curtailed disinvestment target of Rs 78,000 crore in the current fiscal year. In case the share sale does not happen by March, the government will miss the revised disinvestment target by a wide margin.

At a 5 percent stake dilution, the LIC IPO would be the biggest ever in the history of the Indian stock market, and once listed LIC’s market valuation would be comparable to top companies like RIL and TCS.

So far, the amount mobilized from the IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

The government, however, did not disclose in the DRHP the discount which will be given to policyholders or LIC employees in the public offering.

As per norms, up to 5 percent of issue size can be reserved for employees and up to 10 percent for policyholders. During the current financial year, so far Rs 12,423.67 crore has been obtained through OFS, employee OFS, strategic disinvestment, and buyback.

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