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To prevent delays in LIC IPO, valuation process on fast track

The Finance Ministry is currently evaluating the embedded value of the life insurer and a report on that is expected to be prepared in a month’s time.

Written by Sunny Verma | New Delhi |
June 3, 2021 5:51:28 am

Government departments are working to speed up the valuation process of Life Insurance Corporation (LIC) in order to ensure that the initial public offering (IPO) does not face delays, a senior government official said. The Finance Ministry is currently evaluating the embedded value of the life insurer and a report on that is expected to be prepared in a month’s time.

“At the recent meeting of the core group of secretaries on disinvestment (held last month), it was decided that the process of embedded value estimations and the valuation of the entire entity be fast tracked. This work is crucial to the listing process for LIC and we are working on that,” the official said. After the valuation is done, the Department of Investment and Public Asset Management (DIPAM) will launch the IPO, depending upon the market conditions and appetite for such a large IPO.

“The valuation of the total assets of LIC, including the large number of real estate assets that it owns, is a critical part in determining the IPO details. LIC owns many prime properties across the country, which will go into the valuation exercise. This will be done after the embedded value of the business is ascertained this month,” the official said. LIC’s rental income from its estate portfolio was Rs 360.25 crore in 2019-20, an increase of 6.53 per cent over the previous year.

The embedded value is a measure of the consolidated value of shareholders’ interest in the life insurance business, and it needs to be determined by an independent actuary. The government last December selected Milliman Advisors LLP India as the reporting actuary for determining the embedded value of the Corporation. LIC had total total assets of Rs 31.96 lakh crore in 2019-20, up from Rs 31.11 lakh crore in 2018-19.

“We have complete legislative clearance in case of LIC stake sale. Once the valuation process is over, there should not be any delays,” the official said. The government had made the LIC Amendment Act part of the Finance Bill, thereby bringing the required legislative amendment for launching the IPO.

The Corporation’s market share during 2019-20 was 68.74 per cent, in terms of total first year premium, and 75.90 per cent, in terms of new business policies. LIC’s net profit in 2019-20 was Rs 2,712.70 crore, marginally higher than Rs 2,688.49 in 2018-19, as per the latest data available in the its annual report.

The LIC IPO is key to the success of the disinvestment programme in the current fiscal year, which will help the government generate resources to support capital expenditure. The Centre has set a disinvestment target of Rs 1.75 lakh crore for the current year. Apart from LIC listing, strategic sale of BPCL, Air India, Shipping Corporation are among the key strategic sale proposals currently under process.

In fiscal 2020-21, the government had raised Rs 32,835.45 crore through disinvestment by various means including offer for sale, initial public offerings and buyback.

Strategic sale of IDBI Bank, privatisation of two other state-owned banks and a general insurance company are other key transactions expected this fiscal.

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