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The much-awaited initial public offering (IPO) of Life Insurance Corporation (LIC) is “on track” to hit the market in the January-March 2022 quarter with the valuation exercise of the insurance behemoth now completed. The draft red herring prospectus (DRHP) will most likely be filed with SEBI next month, sources privy to the IPO developments said.
Key to divestment target
The government is betting on the LIC IPO to achieve its current fiscal year disinvestment target of ₹1.75-lakh crore, nearly six times what it raised in 2020-21.
Billed as the largest-ever IPO to hit Indian markets, the government is looking to divest 5-10 per cent equity in LIC, which has now been made IPO ready with over 27 legislative changes to the Life Insurance Corporation Act, 1956 through the Finance Act, 2021.
By all counts, the proposed LIC IPO will only be an offer-for-sale (OFS) to help the government shed a small stake.
In the past, government officials had indicated that the IPO may target mopping up about ₹1-lakh crore, but noted that much would depend on the actuarial valuation of the embedded value (EV) — a key metric in the valuation of insurers. Usually, life insurance companies are valued at a multiple of their EVs. Currently, LIC is exempt from disclosing its EV.
Indications are that the DRHP that would be filed with SEBI will detail the EV computation done by reporting actuary Milliman, which is among the world’s largest providers of actuarial services.
Final call on pricing
Once SEBI approval comes — expected to be a formality — merchant bankers will embark on roadshows to ascertain investor interest and the possible pricing. The final pricing will be decided by the government through a Cabinet committee.
As for the market sentiment towards the IPO and the timing, market experts pointed out that the government couldn’t have asked for a more opportune time (January-March) as it will come on the heels of the best-ever IPO year in the last two decades with over $16 billion mopped up in 2021 via 63 IPOs.
On its part, SEBI has also made regulatory changes to smoothen the IPO process for large entities such as LIC. It had relaxed the minimum offer rule to 5 per cent of the post-issue equity if the post listing market value of the company is over ₹1-lakh crore.
Also, the minimum public shareholding norm has also been relaxed so as to reach 10 per cent within two years and 25 per cent in five years.
The Cabinet Committee on Economic Affairs (CCEA) had in July cleared the IPO proposal of LIC. The government has already appointed ten merchant bankers for the transaction.
IPO-bound LIC had recorded a robust 16.66 per cent increase in income from investments (including capital gains) in 2020-21 at ₹2.73-lakh crore (₹2.34-lakh crore), its annual report for 2020-21 said. Total premium income grew 6.33 per cent to ₹4.03-lakh crore in 2020-21 compared to ₹3.79-lakh crore the previous year.
Market share
LIC’s market share stood at 66.18 per cent in total first year premium and 74.58 per cent in the number of new policies as of March 31,2021.
LIC has been running advertisements asking policyholders to update their Permanent Account Number (PAN) so that they can participate in the proposed IPO. A portion of the mega IPO will be reserved for the policyholders.
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