LIC: India's Biggest IPO yet

Life Insurance Corp of India, the country’s largest insurer, on Sunday filed papers with markets regulator Sebi for going public through an initial public offer, set to be the biggest in India.

Through this IPO, its promoter, the government, is selling 31. 6 crore shares, translating to 5% equity of the insurer. LIC is keeping aside 35% of the offering, or nearly 11. 1 crore shares, for retail investors, the draft prospectus showed.

Earlier, the insurer had also said that it would reserve a portion of the IPO for its policyholders, but the exact number under this category was yet to be finalised and hence not disclosed in the prospectus. LIC has not disclosed the discount it will give to policyholders, LIC employees and retail investors in the IPO.

In the Budget speech this year, finance minister Nirmala Sitharaman had said the LIC IPO would be completed before the end of the fiscal. It means one of the world’s largest insurers by net premium earned will be listed before March 31 this year. Once listed, LIC is expected to become one of the most-valued companies in India.

In the run-up to filing of the prospectus, government sources had said it was looking at a market valuation of around Rs 15 lakh crore for LIC. To get that valuation, the IPO will need to be priced at around Rs 2,370 per share while for a valuation of Rs 16 lakh crore the offer price should be around Rs 2,530. And, for a valuation of Rs 13 lakh crore it should be around Rs 2,060 per share, calculations showed. 

Currently, Reliance Industries, with a market capitalisation of Rs 16. 1 lakh crore, is India’s most valued company, while TCS is at number two with a market value of Rs 13. 7 lakh crore, BSE data showed

Set up in 1956, for the government per-share cost of acquisition of LIC shares was 16 paise, the prospectus showed. The life insurer has an embedded value of  Rs 5.4 lakh crore as of September 30, 2021, calculated by international actuarial firm Milliman Advisors. For insurers, the embedded value is one of the most relevant valuation parameters that takes into consideration the company’s present value of future profit and its free surplus, among others.

“The DRHP of LIC IPO has been filed today (Sunday) with the Sebi,” Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management tweeted in the evening. “LIC has 66% market share in new business premiums with 283 million policies and 1.35 million agents as of March 31, 2021.”

Divestment of LIC is crucial for the government to meet its fiscal 2022 divestment target of Rs 78,000-crore. In recent months, the sale of Air India and Neelachal Ispat have been the major ones, both bought by the Tata Group.

The government has appointed 10 merchant bankers for the IPO with Kotak Mahindra Capital leading the pack. Other merchant bankers include Goldman Sachs (India) Securities, Citigroup Global Markets India and Nomura Financial Advisory and Securities (India).

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