LIC IPO: Government files draft papers with Sebi, to offload 5% stake

Life Insurance Corporation of India (LIC), Country's largest life insurer with a market share of 64.1 percent in terms of premiums, has filed its draft red herring prospectus (DRHP) with market regulator Securities Exchange Board of India (Sebi) for an initial public offering (IPO). This 5% stake sale by the government in LIC is estimated to be around Rs 63,000 crore, as per news agency PTI. 

"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. 

Reservation for eligible employees and policyholders 

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The issue with a face value of Rs 10 each per equity shares will be a comprehensive offer-for-sale (OFS) of up to 316,249,885 equity shares by the President of India through the Ministry of Finance, Government of India ("Selling shareholders"). The offer also includes not more than 5% reservation for its eligible employees and not more than 10% for its policyholders. 

Expected to hit D-Street by March 

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 policy holders of the insurance behemoth would get a discount over the floor price. 

The DRHP of LIC IPO has been filed today with the SEBI. pic.twitter.com/jM9CDBMWVH

— Secretary, DIPAM (@SecyDIPAM) February 13, 2022

LIC's embedded value pegged at about Rs 5.4 lakh cr 

According to the draft red herring prospectus, LIC's embedded value, which is a measures 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. 

Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would about 3 times the embedded value or around Rs 16 lakh crore. 

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LIC ने IPO के लिए SEBI में DRHP फाइल किया
रिटेल निवेशकों का IPO में हिस्सा 35% तक होगा #LICIPO क्यों खास?
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— Zee Business (@ZeeBusiness) February 14, 2022

Merchant banking sources said the government is expecting to garner up to Rs 63,000 crore (about USD 8 billion) from the IPO. 

IPO is offer for sale  

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 100 per cent stake or over 632.49 crore shares in LIC. The face value of shares is Rs 10 apiece. 

LIC’s brand is 3rd strongest and 10th most valuable worldwide 

According to Brand Finance report, LIC’s brand is the third strongest and tenth most valuable worldwide insurance brand. The present worth of earnings tied to a brand's reputation is the value of a brand. 

LIC had an asset under management (AUM) of Rs 39.74 trillion as of September 30, 2021, which was more than three times the total AUM of all private life insurers in India, approximately 16.2 times the AUM of the second-largest player in the Indian life insurance industry, and 1.1 times the entire Indian mutual fund industry. 

LIC m-cap to be in line with RIL, TCS once listed 

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

So far, the amount mobilised from 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. 

LIC has 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. 

LIC IPO to help meet govt's disinvestment target 

The IPO of LIC is expected by March and the proceeds would be crucial to meet 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. 

The government is also mulling allowing foreign investors to pick up stake in LIC. As per Sebi rules, foreign portfolio investors (FPI) are permitted to buy shares in a public offer. FDI policy would have to be tweaked for FII/FPI investment in this IPO, as LIC is a corporation and not an insurance company. 

Life Insurance Corporation (LIC) share capital was raised from Rs 100 crore to Rs 6,325 crore during September last year to help facilitate IPO. 

Last month, LIC 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. 

Its new business premium growth rate stood at 554.1 per cent in the first half of 2021-22, compared with 394.76 per cent during the year-ago period. 

There are currently 24 life insurance companies in India, with LIC being the sole public player. 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. 

Book running lead managers 

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. 

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

LIC's inception 

LIC was created on September 1, 1956, when 245 private life insurance companies in India were merged and nationalised. From its founding till 2000, it was India's only life insurance. Based on its size, market relevance, and domestic and global interconnection, IRDAI classified it as a Domestic Systemically Important Insurer ("D-SII") in September 2020.