LIC to Split Its IPO into Two Consecutive Offerings in a First of a Kind Move

The government-owned life insurance giant LIC plans to split its IPO into two consecutive offerings with a few months gap. This is because this IPO, through which the government expects to raise around Rs. 1 lakh crores, may be too massive for the market to absorb in one go.

If the above plan is successfully implemented, this will be a first-of-a-kind IPO in India. In another first-time move by a government-owned company in India, LIC plans to offer pre-IPO share placements to cornerstone investors and marquee asset managers.

Now, let’s take a look at some essential details of the upcoming LIC IPO.

About LIC (Life Insurance Corporation of India)

Founded in 1956 by merging 245 insurance companies, LIC was India’s only life insurance company till 1990. Until the government opened this sector to private companies, LIC’s name was synonymous with life insurance.

Today, LIC still commands the top spot in this sector and offers a wide variety of insurance plans. This includes endowment plans, money back plans, term insurance plans, life insurance plans, whole life plans and insurance riders.

Upcoming LIC IPO Details

In the Union Budget 2021, GOI announced several steps and legislative decisions to list the mega IPO sometime this year. Unfortunately, the Covid-19 pandemic has delayed the plans with several roadblocks. The LIC IPO launch date 2021 is slated to be sometime during the second half of this fiscal year (sometime around Diwali, according to an IANS report).

As per the Finance Bill 2021, the authorised share capital of this IPO is expected to be around Rs. 25,000 crores, with 2,500 crore shares worth Rs. 10 each. As per tender documents by DIPAM, the GOI will sell part of its stake in LIC when it lists its shares on stock exchanges.

As per a recent IANS report, the central government is making all preparations for the IPO. The Centre has invited bids for the following positions:

• Legal adviser,
• Registrar,
• Book running lead managers (BRLM),
• Advertising agency
• Share transfer agents (RTA)

India’s market regulator SEBI has eased the minimum public offer requirements for the IPO. With this, issuers with post-issue capital above Rs. 1 lakh crores have requirements of MPO (minimum public offering) from 10% to Rs. 10,000 crores along with a 5% increment beyond Rs. 1 lakh crores.

LIC has not announced the date for submission of DRHP (draft red herring prospectus) yet. However, following its filing, we will be able to know specific details of this issue like price band, IPO size, valuation, opening and closing date etc.

Decision to Split the IPO

With so many IPO offers in the country already closed, officials believe that a large number of investors’ funds have already been absorbed by the market. That’s why decision-makers have announced to split the Rs. 1 lakh crores IPO into two consecutive offerings with a gap of a few months. This will help the LIC IPO become more successful.

The other option being planned is to opt for share placement before the IPO, a move that government-owned companies usually don’t opt for. Potential investors for the pre-IPO offering will include cornerstone investors, marquee asset managers, sovereign wealth funds and private equity funds.

This will likely accumulate substantial funds ahead of the IPO that may be the largest in India’s history.

LIC’s Financial Status

Decades after the privatisation of the industry, LIC still maintains the top spot with a market share of 69% in FY2020.

According to IRDA (Insurance Regulatory and Development Authority of India), LIC collected first-year premiums of Rs. 1.78 lakh crores in the current fiscal year alone. This amount is 25.17% higher than that of the previous year. The total assets of the company stand at Rs. 31 lakh crores.

Final Thoughts

The largest IPO in India’s history has been in the works for some time now. The combination of the equity shares belonging to LIC, the government-owned insurance giant and increased interest in IPO shares makes it a great investment opportunity.  Moreover, all those involved in preparing the IPO are taking every step to make this event a success. If you are looking for long-term gains or quick listing day gains, you may want to invest in the LIC IPO. However, we always recommend that you conduct proper research before investing, as equity shares are always subjected to market risk.

 

Frequently Asked Questions

1. When is the LIC IPO going to open for sale?

The date for the opening of LIC IPO has not been announced yet. Once LIC files DRHP for its IPO, we will know the opening date. 

2. What is the size of this IPO?

The exact IPO size or price band has not been announced yet. However, according to India’s Chief Economic Adviser, this IPO may gain a total of Rs. 1 lakh crores.

3. Why has LIC decided to split their IPO into two offerings?

With over 25 IPOs having gathered around Rs. 70,000 crores in 2021, LIC thinks that the IPO may be too massive to be absorbed by investors in one go. Hence, they have decided to split this IPO into two with a gap of a few months’ time between them.