India's Mother Of All IPOs Set To Hit Market By End Of Fiscal As Govt Plans To Change LIC's Rule For 'Surplus' Sharing

The government needs to spell out the foreign holdings after listing LIC's listing as up to 74% foreign direct investment (FDI) is allowed in the insurance business.

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Mumbai: The government is leaving no stone unturned to ensure the success of the mega listing of Life Insurance Corporation of India (LIC) and it is busy removing all the impediments ahead of mother of all initial public offerings (IPOs) likely by the end of this fiscal.

The government is planning to make changes in the law that allows LIC to pay only 5 per cent of its surplus to shareholders fund, while 95 per cent goes to the policyholders' fund, which is used to pay bonuses on eligible life insurance policies.

The center is reportedly planning to make LIC at par with private players, governed by the Insurance Act, which allows 10 per cent of the surplus to be transferred to shareholders fund, while 90 per cent goes to the policyholders' fund, a move that is likely to benefit the shareholders but may affect the bonus of the existing participating policyholders.

“It’s only natural that investors will expect a similar structure. We are working out the details, along with a few other changes," the Times of India reported quoting a government source.

However, policyholders with term insurance, guaranteed return policies, and unit-linked plans will not be impacted by dividend distribution policy.

The Centre expects that by doing so, it will be possible to reconcile the interests of shareholders and policyholders while keeping the IPO appealing.

The government needs to spell out the foreign holdings after listing LIC's listing as up to 74 per cent foreign direct investment (FDI) is allowed in the insurance business.

"LIC’s IPO is the acid test for Indian markets. LIC is an organization of unprecedented scale and its performance not just on the IPO but post its listing will be a significantly meaningful barometer of public, institutional, and FII sentiments about the Indian markets," Utkarsh Sinha, Managing Director Bexley advisors told ABP News.

Due to the SEBI listing guidelines, LIC's IPO is expected to boost transparency and governance. The IPO  is said to offer reserved quotas for LIC policyholders.

"The government said up to 10 per cent of the IPO offering amount would go to LIC policyholders. There may be a price cut. A reservation issued by the Corporation in favour of its policyholders should be treated the same as a reservation made by the Securities and Exchange Commission for workers in a public offering. The stock exchanges should be consulted before allocating equity shares to life insurance policyholders. IPO laws allow issuers to provide workers up to a 10 per cent discount," Sonam Chandwani, Managing Partner at KS Legal & Associates told ABP News.