Thanks to a liberal bonus issue of shares that it made to itself in September 2021, the Centre’s cost of acquisition per share of Life Insurance Corporation of India (LIC) is a piffling 16 paise only.

Just five months ahead of filing for the initial public offer (IPO), LIC issued fresh bonus and equity shares to its promoters, the government. A total of 560.2 crore bonus shares were issued against the retained share of government surplus for FY20 and FY21, while another 62.27 crore bonus shares were issued against FY20’s free reserves. LIC also issued 10 crore fresh equity shares at a price of ₹10 apiece to the government.

LIC seems to have borrowed a leaf from the books of private companies who issue bonus shares to promoters ahead of their IPOs. This is a form of compensation or reward for the promoter who can monetise the shares at a profit upon listing. There is no lock-in for bonus shares post listing. Among the recent listings, One97 Communications Limited (or Paytm), Latent View Analytics and FSN E-Commerce (Nykaa) issued shares to promoters and PE investors ahead of their IPOs.

LIC had not paid dividends for two years partly due to the pandemic and partly to dress up the financials ahead of the IPO.

In the recent past, New India Assurance (NIA) and General Insurance Corporation of India (GIC) were IPOs which didn’t work well for the government. Not only did they list below the offer price; even now their shares trade over 70 per cent lower than the listing prices. NIA carried out a stock split and 1:1 bonus issue, while GIC increased its face value and issued bonus shares. But this wasn’t enough to make the best out of the listing process (see table).

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