LIC IPO: Govt Files DRHP To Sell 5% Stake, Stage Set For India's Biggest-Ever Public Offering - Check Details

The DRHP has not disclosed the market valuation of LIC but according to industry standards, it would be about 3 times the embedded value or around Rs 16 lakh crore.

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New Delhi: Life Insurance Corporation (LIC) on Sunday filed Draft Red Herring Prospectus (DRHP) or draft papers with capital market regulator Securities and Exchange Board of India (Sebi) for the sale of 5 per cent stake of LIC by the government for an estimated Rs 63,000 crore.

With this, LIC has set the stage for the country's biggest-ever public offering, reports news agency PTI.

The initial public offering of over 31.6 crore shares or 5 per cent government stake is likely to hit the D-street in March and employees and policyholders of the insurance behemoth would get a discount over the floor price.

According to the DRHP, LIC's embedded value, a measure of the consolidated shareholders' value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.

The DRHP has not disclosed the market valuation of LIC but according to industry standards, it would be about 3 times the embedded value or around Rs 16 lakh crore.

"The DRHP of LIC IPO has been filed today with the SEBI. For filing valuation about 31.6 crore shares are on offer representing 5 per cent equity," Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey tweeted.

News agency PTI reported merchant banking sources as saying that the government is expecting to garner up to Rs 63,000 crore (about USD 8 billion) from the IPO.

According to the DIPAM Secretary, the IPO is "offer for sale (OFS) by the Government of India and no fresh issue of shares by Life Insurance Corporation (LIC)". The Government holds a 100 per cent stake or over 632.49 crore shares in LIC. The face value of shares is Rs 10 apiece.

LIC has a 66 per cent market share in new business premiums with 283 million policies and 1.35 million agents as of March 31, 2021, Pandey added.

The LIC IPO would be the biggest IPO in the history of the Indian stock market and once listed LIC's market valuation would be comparable to top companies like RIL and TCS.

To date, the amount mobilised from the IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

In the DRHP, the Government has not yet disclosed the discount which will be given to policyholders or LIC employees in the public offering. As per norms, up to 5 per cent of issue size can be reserved for employees and up to 10 per cent for policyholders.

LIC IPO Expected By March

The IPO of LIC is expected by March and the proceeds will play a prominent role in meeting the revised disinvestment target of Rs 78,000 crore in the current fiscal.

So far, the government has raised Rs 12,030 crore through CPSE disinvestment and Air India strategic sale this fiscal.

LIC's share capital was raised from Rs 100 crore to Rs 6,325 crore during September last year to help facilitate IPO.

LIC had last month reported a profit after tax of Rs 1,437 crore for the first half of the financial year 2021-22 as compared with Rs 6.14 crore in the year-ago period.

The new business premium growth rate stood at 554.1 per cent in the first half of 2021-22, as opposed to 394.76 per cent during the year-ago period.

LIC is the sole public player among the 24 life insurance companies in India. The size of the Indian life insurance industry was Rs 6.2 lakh crore on a total-premium basis in fiscal 2021, up from Rs 5.7 lakh crore in fiscal 2020.

The government has appointed 10 merchant bankers, 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, to manage the mega IPO of the country's largest insurer.

According to PTI, the Centre is also mulling allowing foreign investors to pick up a stake in LIC.

According to Sebi rules, foreign portfolio investors (FPI) are permitted to buy shares in a public offer. Notably, the FDI policy needs to be tweaked for FII/FPI investment in this IPO, as LIC is a corporation and not an insurance company.

In July last year, the Cabinet Committee on Economic Affairs had cleared the proposal for LIC's IPO.

(With Agency Inputs)