The Life Insurance Corporation (LIC) is planning to open its initial public offering (IPO), likely in the second half of FY20-FY21 according to reports. This IPO is set to be the biggest issue the country has ever seen as the government of India expects to raise around Rs 80,000 crore to Rs 90,000 crore from its stake sale in LIC. This is part of the government’s plan to raise Rs 1.75 lakh crore from a privatisation programme in the current fiscal ending in March 2022, according to a report by Reuters.
The government of India has also roped in around 10 investment banks including the likes of Goldman Sachs, Citigroup and SBI Capital Market to handle the LIC IPO, two government sources revealed to Reuters. As per reports, a ministerial panel dubbed, the ‘Alternative Mechanism on strategic Divestment’, is likely to decide on the size of the stake that will be sold. It is also likely that the size of the stake that is to be sold will not be more than 10 per cent of its stake in LIC.
LIC itself is planning to sell off this stake to not only raise funds but also to get listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). As of August 2020, LIC had not filed for its draft red herring prospectus (DRHP). However, the issue type is speculated to be a book building offer.
Other details such as the price band, the grey market premium, exact issue size and face value of the IPO are yet to be revealed. It is also unclear what the exact dates of the IPO will be as of now. In the race to handle the IPO, there were a total of 16 banks that were competing for a spot. Seven of them were global and nine were domestic banks. From the lot, the lenders that were selected for this monumental task were JM Financial Ltd, Axis Capital, Nomura, BofA Securities, J.P. Morgan India Pvt Ltd, ICICI Securities, Kotak Mahindra, Goldman Sachs, Citigroup and SBI Capital Market.
The government is also looking to take on extra efforts to ensure that it attracts retail investors as well as employees of the company to participate in the IPO, according to Reuters. Besides the banks, the government is additionally looking to appoint legal advisers, advertising agencies, a registrar as well as a share transfer agent for the issue. The government had previously mentioned that the percentage of paid-up equity to be issued or divested as part of the LIC IPO will be determined based on the post-issue capital that is calculated in consonance with clause 19(2) of the Securities Contracts (Regulation) Rules, 1957 (SCRR).
LIC is India largest insurance company that has assets of over Rs 34 lakh crore. It also has subsidiaries in Singapore along with joint ventures in Bahrain, Kenya, Sri Lanka, Nepal, Saudi Arabia and Bangladesh to name a few.
The massive lender recorded a stock market profit of more than Rs 10,000 crore between April and June 2021, according to Angel Broking. By June of 2021, the company had registered a mammoth market share of 67.52 per cent with regards to its new business premium. The growth rate of the company’s new business premiums was more than eight times what it was for last year’s growth which was 148.11 per cent said Angel Broking.
There are several factors that make this IPO a highly anticipated and potentially successful issue as well. It has robust financial performance and has set a precedent of record-high growths. It is also a debt-free company as of FY21. All these elements add up to make this IPO something to look forward to by the end of the financial year.