LIC IPO: Nine updates that you should know
To facilitate the mega IPO, the government significantly increased the authorised capital of LIC to Rs 25,000 crore from Rs 100 crore
The announcement of launching India’s largest initial public offer (IPO) of Life Insurance Corporation of India (LIC) was done by the finance minister Nirmala Sitharaman in her Budget speech earlier this year. Government plans to sell a 10% stake in the insurer raising Rs 1.2-1.5 lakh crore. Ever since then, the streets are buzzing with news about the IPO so here are the nine updates that you should know about the IPO.
LIC Act
The Ministry of Finance has announced that modifications to the Life Insurance Corporation (LIC) Act, 1956 were effective from June 30, 2021. Amendments have also been made to guarantee that the Centre retains at least a 75 per cent interest in LIC for the next five years following its listing, and at least a 51 per cent stake after that time. In addition, modifications ensuring that policyholders get a part of the shares offered in the Initial Public Offering (IPO) have been passed.
Converting the LIC from a corporation to a company, putting in place a board with independent directors in line with listing obligations, increasing the authorised capital to Rs 25,000 crore divided into shares of 10 each, and other legislative changes are among the changes made to the LIC Act. Part III of the Finance Act of 2021 pertains to modifications to the LIC Act of 1956 that includes Board of Directors Framework, Disqualification Criteria, Declaration of Interests, Regarding Related Party, Establishing Investment Committee and Selection of Auditors.
No Chairman
The Life Insurance Corporation of India (LIC) will now have the post of Chief Executive Officer and Managing Director instead of the Chairman position, with the government making changes to relevant rules ahead of the insurer’s initial public offering this fiscal.
The changes have been made by the Department of Financial Services under the finance ministry by amending Life Insurance Corporation of India (Employees) Pension (Amendment) Rules.
Authorised capital
To facilitate the mega IPO, the government significantly increased the authorised capital of LIC to Rs 25,000 crore from Rs 100 crore.
The authorised share capital of LIC shall be Rs 25,000 crore divided into 2,500 crore shares of Rs 10 each, as per the amendments in the Life Insurance Corporation Act, 1956. The government owns a 100% stake in LIC.
Securities Contracts (Regulation) Rules
To pave way for LIC’s IPO the Department of Economic Affairs under the finance ministry recently amended the Securities Contracts (Regulation) Rules.
Companies that have a market capitalisation of more than Rs 1 lakh crore at the time of listing can now sell just five per cent of their shares, with the latest amendment in rules, a move that will be beneficial for the government during the LIC initial public offer.
Such entities will be required to increase their public shareholding to 10 per cent in two years and raise the same to at least 25% within five years.
Policyholders
According to updates, the LIC of India is all set to create a database of policyholders who could be eligible for 10% of the reserved allotment issue in its upcoming IPO.
This database will help avoid duplication among LIC’s policyholders. This move will offer policyholders the opportunity to become a shareholder of LIC of India.
According to a report, over 1 crore new demat accounts will also be opened before the launch of the IPO.
Request for proposal
The central government earlier this month invited Request for Proposal to hire legal adviser, book running lead managers, registrars and advertising agency. The bid submission end date is August 5, and the bid opening date is August 6.
“Not more than one bid shall be submitted by one bidder or bidders having business relationship,” as per the official circular.
SBI Caps and Deloitte are pre-IPO transaction advisors (TAs) for the listing of Life Insurance Corporation of India.
Timeline
Earlier this week Lok Sabha Minister of State for Finance Pankaj Chaudhary said that Initial Public Offer of the state insurer will be completed by the end of this financial year. Chaudhary was replying to a query related to LIC IPO during the first day of the monsoon session of the Parliament.
Follow-on public offer
Given the large size of the IPO, government may decide to sell its stake in Life Insurance Corporation (LIC) in two stages to avoid crowding out private companies from the equity market.
The government plans to sell 10 per cent of its stake in LIC through an initial public offering (IPO). However, it is likely to sell a 5-6% stake through the IPO, and a similar stake through a follow-on public offering (FPO), reported daily financial Mint citing sources.
Portfolio
India’s country’s largest life insurer, LIC collected the highest ever new business premium of Rs 1.84 lakh crore in the fiscal ended March 31, 2021. The market share of the insurer, which has more than 29 crore policyholders, stood at 81.04% in terms of the number of policies issued in March 2021.
LIC is touted as the biggest investor in India and has an asset base of Rs 31,96,214.81 crore. In FY21 alone it bought shares worth Rs. 90,000 crore. Moreover, it plans to touch a stock market investment of Rs. 8 lakh crores by the end of this fiscal year.
Reliance Industries, TCS, ITC, Infosys, Larsen & Toubro, ICICI Bank, HDFC Bank, IDBI Bank, HUL and Axis Bank are among the top ten holdings of LIC based on value.