The government is reportedly going ahead with its proposed LIC (Life Insurance Corporation) listing in the last quarter of the fiscal year 2021-22. This comes at a time when the markets have been seeing some volatility. Also, the performance of some big-ticket IPOs has not made an impact on the government’s plans to go ahead with the LIC listing, according to news reports.
The Finance Minister had in the Budget speech of February 2021 noted that the LIC IPO would be launched in the fiscal year 2022. Upon listing, LIC will potentially be one of the largest domestic firms in terms of market capitalization. Its valuation is estimated at anywhere between Rs 8 and 10 lakh crore, as per reports.
What the proposed LIC IPO is expected to do
Reports note that the government is expected to sell 5 to 10 per cent stakes in the company as part of its disinvestment goals. The expectation is that the sale of stakes in LIC will fetch the government anywhere between Rs 400 billion and Rs 1 lakh crore (1 trillion). Experts note that the LIC IPO if goes according to plan, would help in bridging the fiscal deficit. The government’s disinvestment target for FY22 is Rs 1.75 lakh crore and the LIC IPO is a significant part of this target. The government holds 95 percent stake in LIC, which has assets over Rs 34 lakh crore.
Reports suggest that the insurer has boosted its asset quality ahead of the IPO, and as per a yearly report, its gross non-performing asset (NPA) percentage of 7.78 as of the end of the fiscal year 2020-21 was lower than the gross NPA percentage of 8.17 percent. According to the life insurer’s annual report for 2020-21, it has posted a 16.6 percent rise in income gained from investments for FY21 while its income from premiums increased by 6.33 percent at Rs 4.03 lakh crore compared to the Rs 3.79 lakh crore in FY20. Also, LIC’s long-term investments in equity touched Rs 5.94 lakh crore as compared to the Rs 3.3 lakh crore in FY2020.
Anchor investors evince interest
Reports note that bankers are expected to hold talks with anchor investors for the IPO of LIC in a bid to ensure that the maiden offering is launched in March. Overseas investors have reportedly shown interest in the anchor issue of the proposed LIC IPO. Anchor investors are institutional investors like mutual funds who are offered shares in a company before its IPO so as to show that there is a demand for the shares of the company which will soon be listed. The LIC IPO’s draft red herring prospectus (DRHP) is expected in December or January, as per news reports. The DRHP is an offer document that is filed by an IPO bound company with market regulator SEBI and contains all information about the company’s financials, why it intends to raise funds, and how the same will be utilized.
Apart from the LIC IPO, online education platform Byju’s, logistics company Delhivery, online ride platform Ola are three big companies expected to float their initial public offerings in 2022. As many as 53 IPOs raised funds to the tune of Rs 1.14 lakh crore in the current calendar year till November, which has exceeded the Rs 74,035 crore raised via IPOs in 2017, as per news reports. December 2021 is also expected to be a busy month with ten firms lining up their maiden public offerings, as per reports.
The government is going ahead with its plans to float the LIC IPO in the current fiscal year, in spite of some recent market volatility. The IPO is expected to bring the government closer to its disinvestment target of Rs 1.75 lakh crore for the current fiscal.
When is the LIC IPO expected?
The government plans to float the proposed LIC IPO in the last quarter of the fiscal year 2021-22, as announced in the Union Budget for the financial year.
Who are anchor investors?
Anchor investors are institutional investors like mutual funds which are allocated a company’s shares before its initial public offering.
What is the government’s disinvestment target for FY22?
The disinvestment target of the government for the current fiscal is Rs 1.75 lakh crore and the sale of stakes by the government in the proposed LIC IPO is expected to constitute a significant portion of this target.