LIC’s mega IPO inches closer: Target size, valuation and other details we know so far

Come early 2022 and India could have its biggest ever initial public offering (IPO), with the government deciding to list the insurance behemoth Life Insurance Corp (LIC) of India by the fourth quarter of the current financial year. 

Tuhin Kanta Pandey, who heads the government’s department of investment and public asset management, or DIPAM, said Wednesday that the apart from LIC the Indian government is also looking to privatise as many as five-six companies it owns, within the current financial year. 

So, how much is the government looking to raise from the LIC IPO?

The government is looking to raise as much as Rs 1 trillion, or $13.3 billion, by listing India’s biggest insurer. The government will dilute 10% of LIC’s shares, effectively valuing it at Rs 10 trillion ($133 billion). Some reports, however, say the IPO size could be around Rs 40,000 crore as the mega share sale of Rs 1 trillion may not be feasible.

But wasn’t this IPO announced last year itself?

Yes, it was. Finance minister Nirmala Sitharaman had announced the listing in February 2020, but the government had to shelve its plan in the wake of the coronavirus pandemic, owing to which the country went into a complete lockdown from March 2020, and the stock market tanked. 

How much money does the government plan to collect from disinvestment this year and how much is LIC expected to contribute to the figure?

The government has budgeted for collecting Rs 1.75 trillion from disinvestment during the current financial year. Of this, it hopes Rs 1 trillion, or more than half the target, will be met by selling LIC shares. 

How big will LIC really be as compared to other index heavyweights?

At current levels, LIC will be the third-biggest company by market capitalization behind only Mukesh Ambani-led Reliance Industries Ltd, which is valued at Rs 15.6 trillion, and Tata Consultancy Services, which is worth just over Rs 13 trillion. 

For perspective, LIC will be more than twice as valuable as the State Bank of India, which at Rs 4.45 trillion, is currently the most valuable government-owned entity in terms of market capitalization. 

What steps has the government already taken for listing LIC?

The government has amended the LIC Act via the Finance Act of 2021, to allow for a higher share of profits to be distributed among shareholders, in line with the norm that other insurance companies follow. The amendment also allows for the government to reduce its stake in LIC to 51%, via an enabling provision. 

Will the government have to dilute further stake after the listing?

Yes, it will have to bring its stake down to 75% in two years, to meet the shareholding norms set by the capital markets regulator, the Securities and Exchange Board of India.

What else will change for LIC after the listing?

After it is listed, like all other listed companies, LIC will have to announce its results every quarter and, therefore, will be open to full public scrutiny, unlike now. 

When was LIC set up and how big are its assets under management? 

LIC was set up in 1956 and manages assets worth more than Rs 32 trillion. As the only government-owned life insurer, it has a market share of 68%.