LIC files prospectus for largest Indian IPO

Life Insurance Corporation of India (LIC) has filed its draft share sale prospectus with the capital markets regulator SEBI, paving the way for India’s largest initial public offering (IPO). There is also a possibility that LIC will become India’s most valuable listed company, toppling Reliance Industries Ltd, after listing on the stock exchanges.

LIC plans to sell 316.25 million shares, which is about 5 per cent of its total equity base, said the draft red herring prospectus filed with SEBI (Securities and Exchange Board of India). The 65-year-old LIC has a total equity base of 6.32 billion shares.

The IPO is fully an offer for sale — which means that the proceeds will go fully towards the government and help it reach its disinvestment target. In the Union Budget presented earlier this month, the government had pegged disinvestment receipts at Rs 78,000 crore for this financial year.

According to the offer document, a portion of shares not exceeding 5 per cent of the offer will be reserved for employees. Similarly, another portion not exceeding 10 per cent will be reserved for eligible policyholders. These are Indian citizens holding LIC policies as on the date of the draft red herring prospectus.

The pricing of the IPO will be decided in due course, two days before the opening of the public offer, according to the prospectus. It also added that policyholders and employees may get a discount compared to the price offered to the public at large. A minimum 35 per cent of issue will be reserved for retail investors.

The prospectus also said that the embedded value of LIC is Rs 539,686 crore. Embedded value is a yardstick used to measure the value of a life insurance company — it is the sum of the present value of all future profits from the existing business and shareholders’ net worth. Insurance regulator IRDAI cleared the LIC IPO last week.

Private life insurance companies are currently trading at two to four times their embedded value. Using the same yardstick, LIC’s market capitalisation could be between Rs 10.8 lakh crore and Rs 21.6 lakh crore. Currently, the most valuable firm in India is Reliance Industries Ltd with a market capitalisation of Rs 16.1 lakh crore.

A 5 per cent sale even at a valuation of Rs 10.8 lakh crore will net the government Rs 54,000 crore. This will be close to thrice the Rs 18,300 crore raised by One 97 Communications Ltd (the owner of Paytm) in its IPO last year.

LIC is the largest life insurer in India with a 64.1 per cent market share in terms of premium, a 66.2 per cent market share in terms of new business premium, a 74.6 per cent market share in terms of number of individual policies issued as well as by the number of individual agents, which comprised 55 per cent of all individual agents in India as at March 31, 2021, said the prospectus.

LIC is the largest asset manager in India with managed assets worth Rs 39.6 lakh crore as of September 30, 2021. LIC’s assets under management (AUM) as of March 31, 2021, are more than 3.3 times higher than the total AUM of all private life insurers in India.

The Corporation may allocate up to 60 per cent of the QIB (qualified institutional buyers) portion to anchor investors on a discretionary basis. One-third of the anchor investor portion will be reserved for domestic mutual funds. Kotak, Goldman Sachs, Axis Capital, ICICI Securities, BofA Securities, JM Financial, Citigroup, JP Morgan, Nomura and SBI Capital Markets are the merchant bankers to the issue. The IPO is expected to be concluded before the end of the fiscal year ending March 2022.

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