Government Sets Rs15 Trillion Valuation for LIC

As of now there is nothing official about it. However, reports indicate that the government may look to seek a valuation of Rs.15 trillion for the LIC IPO. In dollar terms, that translates into an approximate valuation range of $200-$205 billion at the current rupee/dollar exchange rate.

The eventual IPO valuation will be based on the embedded actuarial value calculated by Milliman Advisors of the US. The valuation has got delayed due to the complexities involved in the LIC valuation process. However, it is broadly estimated that the embedded actuarial valuation for LIC could be around Rs.4 trillion or Rs.400,000 crore.

The global practice has been to peg an insurance valuation at 3.5 times to 4 times the embedded value. That would approximate peg the valuation of LIC at around Rs.15 trillion for the IPO purpose. It would be interesting to see what would be the size of the divestment that the government would do in this case.

As per the special amendment made in the SEBI Listing Rules, the government can divest as low as 5% in the IPO, although it has approval to go up to 10% as divestment in the IPO. Based on these indicative valuations, the divestment value for the government would range anywhere between Rs.70,000 crore and Rs.140,000 crore. The lower end looks more likely.

How would this type of valuations peg the ranking of LIC in terms of market cap. There are two ways of looking at it. In India, the market value of $205 billion would make LIC the second largest in terms of market cap, below Reliance Industries. LIC would be valued at more than TCS and it will be the most valuable financial services franchise in India.

How would LIC rank among global insurers? With a market cap of $205 billion to begin with, LIC will straight away be the second largest insurer in the world by market cap. Only United Health of the US has a market cap that is higher than LIC. In fact, LIC will be more valuable than most of the marquee global insurance names like Aetna, Travelers, AXA, AIA and Allianz. That would surely be formidable heft for LIC.

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