Stocks

Run-up to LIC IPO: Government pushes for legislative changes to LIC Act by month-end

Shishir Sinha/ Richa Mishra New Delhi | Updated on March 04, 2021

IPO expected by FY22 Q3

The government is preparing the ground for the initial public offering of LIC by the third quarter of FY21-22. It is pushing for legislative approvals in the second leg of the Budget session starting March 8.

“The task is not easy. Lot of work has to be done to meet the target of third quarter of FY21-22,” a senior official from DIPAM (Department of Investment and Public Asset Management) told BusinessLine. Though the government has not spelt out the quantum of disinvestment, indications are that it could be less than 10 per cent.

While a few compliance measures have to be met before the IPO, some of them can go on simultaneously, the official explained. For instance, legislative changes and valuation can go together. On February 1, the government proposed 19 changes to the LIC Act. One was about raising the authorised share capital to ₹25,000 crore. Another related to reserving 10 per cent of equity shares for policy holders, who can be offered shares at a 10 per cent discount. However, there is no change on the sovereign guarantee on the policy, which would give comfort to the policyholders.

Pre-requisites for IPO

The government plans to complete the parliamentary process for the Finance Bill 2021 by March 31, which will, in turn, pave the way for amendments in the LIC Act. With this, one milestone for the LIC IPO will be completed. Simultaneously, the government hopes to arrive at the valuation, which will help in finalising the price band.

On December 31, the government appointed Milliman Advisors LLP India as the Reporting Actuary to determine the Indian Embedded Value (IEV) for LIC. IRDAI regulations require an applicant company to file the ‘Embedded Value’ before an IPO.

Another pre-requisite for the IPO is lowering the minimum public offer (MPO) size.

SEBI has now decided that for issuers with post-issue market capital exceeding ₹1-lakh crore, the MPO requirement should be reduced from 10 per cent of post issue market capital to ₹10,000 crore + 5 per cent of the incremental amount beyond ₹1-lakh crore. These issuers shall be required to achieve at least 10 per cent public shareholding in two years and at least 25 per cent in five years from the date of listing.

Published on March 04, 2021

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