LIC IPO: DRHP next week, issue in March

The highly-anticipated public offer of insurance behemoth LIC is likely to be launched by March, while draft papers are expected to be filed with market regulator Securities and Exchange Board of India (SEBI) by next week. The IPO, which is touted to be the country’s biggest-ever public offering, will see the government diluting up to a 10% stake in LIC to raise around ₹80,000 crore from the issue. Though, the market valuation of the insurance major is yet to be formally announced.

Finance minister Nirmala Sitharaman in her Budget speech on Tuesday mentioned that the initial public offering (IPO) of Life Insurance Corporation (LIC) is expected shortly.

Given that the government is well short of its highly ambitious disinvestment target of ₹1.75 lakh crore for the financial year 2021-22, the government is keen to push the country’s biggest ever public offering in the last quarter of the current fiscal. So far, the central government has managed to raise ₹9,330 crore through disinvestments in state-owned companies.

In the Union Budget 2022, the government revised downward the disinvestment target for the current fiscal to ₹78,000 core (including LIC IPO), compared to the earlier budgeted estimate of ₹1.75 lakh crore. For FY23E, it has been pegged at ₹65,000 crore.

Here’s all the key development related to LIC IPO:

• The state-owned insurer is likely to file the DRHP (draft red herring prospectus) with Sebi by next week or the end of February. The offer will open for subscription in the month of March.

• In her Budget speech, FM Sitharaman said the much-awaited IPO of LIC of India is expected shortly. Last week, the FM had reviewed the progress of the public offer in a meeting with top officials of the ministry.

• Disinvestment secretary Tuhin Kanta Pandey had recently reiterated that plan is on course for the IPO in the last quarter of this fiscal.

• The Cabinet Committee on Economic Affairs had in July last year approved the disinvestment of LIC.

• The government is yet to take a final call on the quantum of disinvestment. There is speculation that the centre will sell up to a 10% stake in the company.

• The government is planning to allow foreign investors to buy stakes in the LIC. As per Sebi rules, foreign portfolio investors (FPI) are permitted to participate in a public offer.

• As per the current FDI policy, 74% foreign investment is allowed under the automatic route in the insurance sector. However, these rules do not apply to the LIC, which is regulated through a separate LIC Act.

• In September last year, as many as 10 merchant bankers, including Goldman Sachs (India) Securities, Citigroup Global Markets, and Nomura Financial Advisory and Securities (India), were hired to manage the mega IPO of LIC.

• Among others, SBI Capital Market, JM Financial, Axis Capital, BofA Securities, JPMorgan India, ICICI Securities, and Kotak Mahindra Capital were also appointed as bankers to manage the offer.

• Cyril Amarchand Mangaldas has been hired as legal advisor for the IPO.

All you need to know LIC of India before it goes public

LIC of India is one of the oldest and strongest companies in India with the highest market share of around 61% in new business premiums and 71% in a number of policies. In the financial year 2020-21, the insurer’s assets under management (AUM) doubled to ₹36.7 lakh crore on a standalone basis.

Apart from insurance LIC has two subsidiary companies - LIC Pension Fund and LIC Cards services - and four associate companies, namely, IDBI Bank, LIC Housing Finance, LIC Mutual Fund trustee company, and LIC Mutual Fund AMC.

On the financial front, the PSU reported a net profit of ₹1,437 crore during the first half of FY22 (April-September), against ₹6.14 crore in the year-ago period. The rise in profit was driven by a 12% growth in income from investments. For FY21, LIC had posted a net profit of ₹2,906.77 crore, compared to ₹2,712.7 crore in FY20.