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Union Cabinet is expected to consider a proposal on Saturday to put Life Insurance Corporation (LIC) at par with public sector banks for Foreign Direct Investment (FDI). This is critical as government is getting ready to off load around 5 per cent equity or 31.62 crore shares in LIC.
Sources confirmed BusinessLine that Union Cabinet and Cabinet Committee on Economic Affairs (CCEA) are scheduled to meet Saturday afternoon. “FDI proposal for LIC likely may taken up,” a source said. Draft Red Herring Prospectus (DRHP) for Initial Public Offer (IPO) has already been filed with SEBI and road shows has begun.
Government intends to launch IPO during second half of next month.
As on date, insurance sector hac FDI limit of 49 per cent, but LIC is excluded from this. That is why there is need to change FDI norms. Sources said that initially, FDI can be capped up to 20 per cent with approval route in LIC. Present norms prescribe 20 per cent limit under approval route for public sector banks which include State Bank of India.
The DRHP has pegged the Indian Embedded Value ( IEV ) — a measure of future cash flows in life insurance companies, and the key financial gauge for insurers — at around ₹5.40-lakh crore. It has mentioned that not more than 50 per cent of the Net Offer shall be available for allocation to QIBs (Qualified Institutional Bidders). Foreign investors will be part of QIB.
Further, it said that not less than 15 per cent of the Net Offer or the Net Offer less allocation to QIB Bidders and RIBs shall be available for allocation to non-institutional bidders or high net-worth individuals (HNI) while not less than 35 per cent will be for retail investor i.e ., those who are putting the bid up to ₹2 lakh .
“The Employee Reservation Portion shall not exceed 5 per cent of our post-Offer Equity Share capital. The Policyholder Reservation Portion shall not exceed 10 per cent of the Offer size
Entire mobilisation from the proceed will go the government. This disinvestment is critical as the government so far during FY21-22 has collected just over ₹12,000 crore through OFS (Offer for Sale through Stock Exchanges), Employee OFS and Strategic Disinvestment, while the government has revised the target for disinvestment to ₹78,000 crore against budget estimate of ₹1.75- lakh crore.
This disinvestment is also important to achieve the revised fiscal deficit target of 6.9 per cent
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