The Centre has now taken another major step towards making insurance behemoth LIC IPO ready by bringing into effect from Wednesday all the 27 legislative changes made to the Life Insurance Corporation Act 1956 through this year’s Finance Act.
With this move, the legislative ecosystem to go ahead with the IPO – expected to be the largest ever and could net the exchequer about ₹1 lakh crore – is now in place, say insurance industry observers.
The latest Department of Financial Services move to operationalise the 27 amendments in LIC Act comes on the heels of the government making changes in securities contracts Rules to relax minimum public offer norms to facilitate large issues such as that of LIC.
Rahul Chadha, Managing Partner, Chadha & Co, a law firm, said, “By making Part III of the Finance Act, 2021, effective from Wednesday, the Government has taken a major step towards making the required changes to the constitution of LIC, including provisions for constituting a board of directors and audit committee, increasing authorised share capital etc. These changes will remove some legal impediments to the proposed IPO of LIC.”
Aseem Chawla, Managing Partner, ASC Legal, said the amendments pave the way for an enabling legislative ecosystem which provides conducive ground for the initial public offering. “More so, when the government is soliciting investor expression for the same,” he said.
The government has already started making presentations to global investors in roadshows to sound them out about the mega IPO that is in the works. It is, however, yet to issue the Request for Proposal for appointment of merchant bankers and book running lead managers.
In the past few months, government has been taking several key steps to make LIC IPO ready including implementing the legislative changes to LIC Act, giving nine-month tenure extension to incumbent LIC Chairman MM Kumar (whose term was to end on Wednesday) and offering a good wage hike to employees.
The spate of amendments to LIC Act include putting in place a board with independent directors in line with listing obligations, increasing the Authorised Capital to ₹ 25,000 crore divided into 2,500 crore shares of ₹10 each. Legislative changes have also been made for LIC to appoint an Audit Committee, appoint auditors, declare dividend and issue bonus shares. The amendments do not alter the legal position of the corporation or turn it into a company. It continues to be governed by the LIC Act.
Amendments have also been done to ensure that Centre will hold at least 75 per cent stake in LIC for the next five years after listing and at least 51 per cent in the insurance behemoth after that period. Besides, amendments to ensure that policyholders are allocated a portion of the shares to be offered in the IPO have also been enacted and put into effect from Wednesday.
Indications are that the Centre may shed up to 5 per cent stake through the IPO. Finance Minister Nirmala Sitharaman had, in this year’s Budget, announced that LIC will launch its IPO this fiscal. Once listed, LIC is expected to be the country’s largest company by market capitalisation, ahead of Reliance Industries Ltd, say capital market observers.
( Note:This article said that with the amendments to the LIC Act, the corporation would become a company. LIC clarifies that despite the amendments, LIC's legal status remains unchanged. The article has been modified to correct the error. )
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