The initial Life Insurance Corp (LIC) stock sale was delayed until mid-April to May due to volatile markets in the wake of the Russia-Ukraine conflict.
The government has until May 12 to launch LIC’s initial public offering (IPO) without filing new papers with market regulator Sebi. Recently, Divestment Secretary Tuhin Kanta Pandey said there was strong investor interest in the state-owned company’s bid, but Center would only proceed with the IPO if it was confident of a successful listing.
He said the submission of the DRHP was within the expected timeframe, but the current volatile market scenario is the result of unforeseen global events arising from geopolitical tensions, which the government is closely monitoring.
Important details on the LIC IPO.
On February 13, the government submitted the draft red herring prospectus (DRHP) for the IPO to Sebi, which gave its approval last week.
The government will sell about 31.6 billion shares, or 5% stake, in the insurance giant, which is expected to be struggling €60,000 crore to the Treasury. The public offering was originally scheduled to launch in March, but the Russia-Ukraine crisis thwarted plans.
The embedded value of LIC, which is a measure of consolidated shareholder value in an insurance company, has been set at about €5.4 lakh crore as of September 30, 2021 from international actuarial firm Milliman Advisors. Although the DRHP does not disclose LIC’s market valuation, according to industry standards it would be approximately three times the embedded value.
With a 5% stake sale, LIC’s IPO would be the largest ever in the history of the Indian stock market and LIC’s post-listing market valuation would be comparable to top companies such as RIL and TCS. So far, the amount mobilized by Paytm’s 2021 IPO has been the largest ever €18,300 crore, followed by Coal India (2010) at almost €15,500 crore and Reliance Power (2008). €11,700 crores.
LIC has reserved up to 35% of its total IPO volume for retail investors. However, the government has not disclosed in the DRHP the rebate given to policyholders or LIC employees as part of the public offering. According to the norms, up to 5% of the issue volume can be reserved for employees and up to 10% for policyholders.
LIC policyholders can only claim the 10% quota reserved for them if their LIC policy and PAN are linked. Only policyholders whose policies were purchased on or before February 13, 2022 are eligible to apply under the Policyholder Quota.
Ahead of the IPO, LIC released its financial results for the December quarter (Q3FY22). According to the website, the insurer’s net profit increased €235 crore in the third quarter versus a meager €94 lakh in the same period last year. Similarly, net income rose for the nine-month period ended December €1,643 crore from €7 crore a year ago.
The large increase in LIC profit is largely due to the change in the surplus distribution model. The LIC Act was amended to bring its bonus distribution model on par with private life insurers.
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