Union Cabinet Approves Up To 20% FDI Under Automatic Route In IPO-Bound LIC: Report

The government has authorised the listing of LIC shares on the stock market via an IPO by selling a portion of its investment in the insurer and raising new equity capital.

Representational Image. (Source: Getty Images)

New Delhi: The Union Cabinet has approved up to 20 per cent of foreign direct investment (FDI) through the automatic route in IPO-bound Life Insurance Corporation (LIC) in order to expedite disinvestment of the country's largest insurer, according to the sources.

The Cabinet, helmed by Prime Minister Narendra Modi, made the decision in this respect, news agency PTI reported.

The government has authorised the listing of LIC shares on the stock market via an IPO by selling a portion of its investment in the insurer and raising new equity capital.

Foreign investors may be interested in taking part in the mega-IPO. However, the current FDI policy included no mention of foreign investment in LIC, which is a statutory company created under the LIC Act of 1956.

Because the current FDI policy limits foreign inflows to 20 per cent for public sector banks with government permission, it has been agreed to allow foreign investment of up to 20 per cent for LIC and other corporate entities.

Furthermore, such FDI has been retained under the automatic route, as in the case of the rest of the insurance industry, to speed the capital raising process, according to one of the sources.

Increased FDI inflows will augment local capital, technology transfer, and talent development, resulting in faster economic growth and development across industries.

Life Insurance Corporation submitted draught documents with capital market regulator Sebi on February 13 for the sale of a 5% share by the government for an estimated Rs 63,000 crore, paving the way for the country's largest-ever public offering.

The IPO of around 31.6 crore shares, or 5% of the government holding, is expected to touch D-street in March. Employees and policyholders of the insurance behemoth would receive a reduction off the starting price.

According to the draught red herring prospectus (DRHP), LIC's embedded value, which is a measure of the consolidated shareholders' worth in an insurance business, has been estimated by international actuarial firm Milliman Advisors to be at Rs 5.4 lakh crore as of September 30, 2021.

Although the DRHP does not disclose the LIC's market valuation, according to industry norms, it would be around three times the embedded value, or approximately Rs 16 lakh crore.

So far, the sum raised from Paytm's IPO in 2021 has been the most in history, at Rs 18,300 crore, followed by Coal India (2010) at roughly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

(With PTI Inputs)