LIC IPO: Government Likely To Take A Call On Timing Within This Week | Details Here

LIC Mega Listing: The government is planning to dilute 5 per cent stake or 31.6 crore shares; the Centre has time till May 12 to launch the IPO without filing fresh papers with the Sebi

LIC's embedded value was pegged at Rs 5.4 lakh crore as of September 30, 2021. Image: Getty

New Delhi: The mega initial public offering (IPO) of the Life Insurance Corporation of India (LIC), which was delayed by a few months because of volatile market conditions and geopolitical tension, may come up soon for listing. The IPO was originally planned in March (previous financial year).

According to a report by the PTI, the central government is likely to take a call on the timing of the public listing of the LIC within this week, a senior official said.

"A decision on timing the IPO would be taken this week," the official told PTI.

The Centre is planning to dilute 5 per cent stake or 31.6 crore shares in the country’s largest insurer. The government has time till May 12 to launch the IPO without filing fresh papers with the Sebi, the capital markets regulator.

The official said it would be a tough call for the government to decide whether to go ahead with the retail and domestic investor demand or to wait for geopolitical tension to ease and FIIs to return to market.

According to analysts, there are two propositions open for the government.

If the government doesn’t launch the IPO by May 12, then the filing would have to be deferred till September since fresh papers with updated quarterly results and valuations would have to be filed again with the Sebi.

If the government decides to go ahead with the LIC IPO by May 12 then the insurer will have to file the red herring prospectus with the Sebi by next week.

Under the present market condition, the government is unlikely to offload more than 5 per cent stake in the LIC. “When we are already facing headwinds, we cannot test waters with higher IPO size,” he said.

Milliman Advisors, an international actuarial firm, has measured the embedded value of the LIC that was pegged at Rs 5.4 lakh crore as of September 30, 2021.

What is embedded value?

Embedded value is a common valuation measure in the life insurance industry used to estimate the consolidated value of shareholders’ interests.

Estimates from certain quarters mentioned that the market valuation of the LIC would be 2-3 times its embedded value. The company of the magnitude of LIC, such high multiplier to embedded value may not be correct, the official said, while adding, the IPO price would have to be fixed in a way that on the listing day there is an upside to the stock and investors get rewarded.

According to reports, the listing of the LIC is a key part of plans by the Centre, which wants to divest state assets to fund a yawning Budget deficit. The government has pegged disinvestment receipts at Rs 65,000 crore for 2022-23, up from Rs 13,531 crore last fiscal year.