LIC IPO: insurer to retain up to 10% of issue size for policyholders

In its much-anticipated draught papers submitted today, the state-run Life Insurance Corporation of India (LIC) reiterated its plans to impose policyholder and employee quotas and offer them a discount on the issue price.

The percentage set aside for policyholders can be as high as 10%.

The draught prospectus stated, “The aggregate of reservations for eligible policyholder (s) shall not exceed 10% of the offer size.”

Employee quotas are limited to 5%. The amount of the discount will be announced at least two days before the bid opening date.

According to the draught prospectus dated February 13, LIC will sell 31.6 crore shares. The filing also cited a 5.4 lakh crore embedded value. The present value of future earnings is also incorporated into the present net asset value of insurance firms using the embedded value technique (NAV).

The IPO is a 100 percent government of India offer for sale (OFS), with the Life Insurance Corporation issuing no new shares (LIC). The LIC IPO is anticipated to take place in March, and the funds will be vital in meeting the modified disinvestment target of Rs 78,000 crore for this fiscal year. This year, the government has raised a total of Rs 12,030 crore from CPSE disinvestment and the strategic sale of Air India.

The government has picked ten merchant bankers to manage the country’s largest insurer’s massive IPO, including Kotak Mahindra Capital, Goldman Sachs (India) Securities Pvt Ltd, Citigroup Global Markets India Pvt Ltd, and Nomura Financial Advisory and Securities (India) Pvt Ltd. The government is also considering allowing foreign investors to buy LIC stock.

Under Sebi rules, foreign portfolio investors (FPIs) are allowed to purchase shares in a public offering. Because LIC is a corporation rather than an insurance company, the FDI rules would need to be amended to allow FII/FPI investment in this IPO. The IPO also comes as foreign investors withdraw cash from the domestic market, just as Prime Minister Narendra Modi’s government tries to meet a drastically reduced divestiture objective for the current fiscal year.

At the end of September, the company’s investment in government securities and T-Bills totaled 61.44 billion Indian rupees.