How much could the Centre mop up via the IPO? Why is there talk of a split IPO?
The story so far: The Centre is set to list India’s largest insurance firm, state-owned Life Insurance Corporation of India, on the stock exchanges to help meet disinvestment targets for the year. The Cabinet Committee on Economic Affairs approved the IPO in July. Earlier, actuarial firm Milliman Advisors was appointed to assess the embedded value of LIC. Currently, at least 16 merchant bankers, including global players HSBC, Goldman Sachs, Bank of America, Citigroup and BNP Paribas, are in the race to help manage the public issue. The government is expected to announce its choice shortly. Next, a Group of Ministers constituting the alternative mechanism on strategic disinvestment will approve the actual quantum to be placed on offer.
Why is LIC coming out with a public offering?
The government has in recent years found it difficult to meet disinvestment targets. Divestment of stakes in Air India and BPCL has been delayed for various reasons, including COVID-19, and may see fruition this financial year. The Centre has an ambitious disinvestment target of ₹1.75 lakh crore for FY22. A successful LIC IPO, in which the government will sell a sizeable stake, will help it meet this goal. While a date has not been announced, the listing of LIC is expected in the third or fourth quarter of 2021-22.
What changes did SEBI make to smoothen LIC IPO path?
In February, SEBI tweaked its rules to allow promoters of companies with a market capitalisation of ₹1 lakh crore post-IPO to reach 10% public shareholding in two years and raise that figure up to 25% in five years. Earlier, any company with a market cap of ₹4,000 crore and above had to achieve 25% public shareholding in three years.
Also read | Attempts to privatise LIC will fail once again: AIIEA general secretary
Why is the market agog with expectation for this IPO?
Life insurance in India is still nascent, with only about 2.82% penetration as of 2019, according to insurance regulator IRDAI. So, the addressable market is huge. Two, about two decades after private players have been allowed entry, LIC’s market share is still at a high of 66.2%, as per IRDAI’s FY20 report. According to primeinfobase.com, the value of equity holdings of LIC, India’s largest institutional investor, touched an all-time high of ₹7.24 lakh crore as on March 31, 2021 — across almost 300 companies in which it had at least 1% stake.
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