LIC is a brand which needs no introduction. One of the oldest and largest insurance company in India, almost every family in the country irrespective of middle-class or wealthy has at least one LIC policy.
In her budget speech for 2020, Finance Minister Nirmala Sitharaman first made public the government’s intention to sell a partial stake in the Life Insurance Corporation through an initial public offer (IPO).
“Listing of companies on stock exchanges (instils) discipline (into) a company and provides access to financial markets and unlocks its value. It also allows retail investors to participate in the wealth so created,” the Finance Minister said in her Budget speech.
While earlier reports indicated that the stake sale would be restricted to just 10%, the latest reports suggest that that the stake offloaded by the government would go up to 25%.
Why is the government coming out with an LIC IPO?
The primary reason for stake sale in LIC through an IPO is to fund the fiscal deficit. In the Union Budget for 2020, the government had set a high divestment target of Rs 2.1 lakh crore for FY 2020-21 out of which over Rs 90,000 crore was expected to be generated by selling a stake in public sector banks and financial institutions.
When is the LIC IPO expected?
The much-awaited LIC IPO was expected to hit the market towards the end of FY21. However, the unexpected Covid pandemic put a speed breaker in the government’s move, and now we can expect the LIC IPO to come out only in the next financial year.
Government has appointed Deloitte Touche Tohmatsu India Ltd. and SBI Capital Markets Ltd as advisors to help LIC prepare for the IPO by evaluating the capital structure of LIC as well as other listing requirements.
At present, LIC is also in the process of appointing an actuarial firm to arrive at the valuation measure used by life insurers to calculate the current value of earnings that will be generated in the future from policies that have already been sold. Apart from this, the government has also proposed some amendments in the LIC Act, which is likely to be considered by the parliament in the upcoming winter session.
Why LIC IPO will be the mother of all IPO’s?
Given the fact that LIC is a massive financial giant in terms of assets under management (AUM) when listed, LIC is likely to become the country’s biggest company by market capitalisation beating even the likes of TCS & RIL. LIC’s listing on exchanges is also expected to provide a positive trigger to the market.
According to a media report quoting a former top bureaucrat, even a 10 percent stake sale in LIC could help raise Rs. 80,000-90,000 crore. At 25% stake sale, the amount raised would be significantly higher.
LIC’s premium valuation can be attributed to its undisputed leadership position in the market despite intense competition from 23 private insurance companies and robust asset quality. LIC’s total life fund and assets as on March 2020 stood at 3114496.05 and 3196214.81 respectively.
Key strengths of LIC which makes LIC IPO one of the most awaited IPO
LIC has a widespread presence across the length and breadth of India with eight zonal offices, 113 divisional offices, 2,048 branch offices, and a strong field force of over 12 lakhs+ advisors. LIC also has a wide global presence through its joint venture companies wholly-owned subsidiaries in countries including places like Fiji, Kenya, Sri Lanka, Nepal, Singapore, Bangladesh, Fiji, Kuwait, Mauritius, Oman, Qatar, UAE, Bahrain and UK.
LIC offers a healthy product mix for all age groups, from children to senior citizens. For the financial year 2019-20, LIC’s market share stood at 75.90 in terms of policies sold.
LIC is a profit-making state-owned organisation with immense brand recall value and trust among Indians. The sovereign guarantee applicable on all traditional policies of LIC makes it a preferred choice among traditional investment products for many first-time investors.
In the Union Budget Speech for 2021, the Finance Minister Nirmala Sitharaman has reaffirmed that the much awaited LIC IPO would take place in the upcoming financial year.
Around 10% of the IPO would be reserved for LIC’s policyholders.
“Up to 10% of the LIC IPO issue size would be reserved for policyholders” stated Anurag Thakur, Minister of State for Finance.
In a recently published interview the Managing Director of LIC,Vipin Anand stated that the LIC IPO process has begun and all structures have been put in place.
Overall, the proposed LIC IPO looks like a win-win for both government and investors. No wonder the LIC IPO is being touted as the mother of all IPO’s akin to Saudi’s massive Aramco IPO.
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Article last updated on 25/02/21
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