India’s largest insurance provider, Life Insurance Corporation of India (LIC), is gearing up to go public by the end of FY 22. With an estimated valuation of Rs. 10 lakh crores, LIC’s IPO will be the biggest in this country to date.
Government plans to divest up to 25% of India’s largest insurer, with initial disinvestment of 10%. The remaining will be completed in various tranches. This move will likely increase LIC’s authorised capital to Rs.25000 crores, divided among 2500 crore shares of Rs. 10 each.
However, a series of changes to the LIC Act, 1956 is necessary to alter its governing structure and the books of this insurance provider.
Changes to the LIC Act is imminent
After the Cabinet’s approval for disinvestment, GOI will present an amendment bill in Parliament. However, since the Monsoon Session has been cut short, it will be introduced in the Winter Session.
The amendments to the LIC Act will increase its capital base to accommodate more shares during this upcoming IPO. Therefore, the paid-up capital of LIC, which stands at Rs. 100 crores, will increase in this due course.
At first, it was expected that the post-IPO LIC would be renamed as a Company from Corporation.
Nonetheless, to retain sovereign guarantee provision, the corporation has to stay with its name.
Did you know?
The Companies Act of 2013 does not allow any organisation to be named as a Company if it enjoys a sovereign guarantee.
Proposed changes to LIC Act
The following sections in the LIC Act will be amended for the purpose of this IPO –
- Section 24: It denotes the way LIC deals with its corpus
- Section 28: It delineates policies about dividend distribution
- Section 37: It provides a sovereign guarantee on its policies
LIC pays 5% of their surplus to the Indian Government and the rest to their policyholders in the current setup. Therefore, it will also alter the existing dividend payment structure.
Moreover, it is still unclear what will happen with the retention of the government guarantee on various policies.
Industry experts are unsure about how these estimated changes will be eventually realised. Furthermore, SEBI has also succeeded in relaxing the MPO or Minimum Public Offer norms to pave the way for this IPO.
For a post-issue market capital of beyond Rs. 1 lakh crores, they will reduce the MPO size from 10% of the sum to Rs. 10000 crores and 5% of the incremental amount.
Reshuffling of the investment books
The Government has appointed SBI Capital and Deloitte to run this IPO, and their initial move will be to bring necessary changes to LIC’s investment books, which holds a balance sheet of Rs. 32.8 lakh crores.
Unlike traditional organisations, insurance companies have two books, policyholder’s investment book and shareholder’s investment book. As of Q1 of FY2021, the policyholder’s investment in LIC stands at Rs. 30.1 lakh crores, and shareholder’s sideshows Rs. 685 crores.
Since LIC has a diversified investment portfolio, a clear distinction between their debt and equity market investment is crucial. Moreover, it will help public investors understand their investment avenues and methods of handling them. Resultantly, LIC is coordinating with its consultants to simplify its books before this IPO.
Key company highlights
- In March 2020, LIC recorded 2.19 crore policies, which is a company record
- In FY2019-20, they reported a notable Rs. 51,227 crores in premium income and an annual premium of Rs. 1.7 lakh crores.
- It has a market share of 66%, with a claim settlement ratio of 96.69%.
- In 2019, LIC acquired a 51% stake in IDBI Bank
- LIC received Reader’s Digest Trusted Brand Award 2020 as the winner of the Life Insurance Category.
LIC of India, a leader in India’s insurance sector, has been a reliable organisation for its investors to date. With this company going public, the hype around it is easily understandable.
Therefore, interested investors must keep their eyes peeled for the dates and related information as they come out and plan investments accordingly. You can always refer to the Angel One Blogs for such updated news and learn about share market fundamentals.
Frequently Asked Questions
What are the opening and closing dates of this LIC IPO?
Even though the dates are yet to be finalised, according to DIPAM, investors can expect it in the 3rd or 4th quarter of FY2022.
How will this IPO affect existing policyholders?
Existing policyholders are not likely to be affected by this IPO.
Who is the registrar of the LIC IPO?
No relevant information regarding this is available yet.