The government has started the process to launch the initial public offer (IPO) of Life Insurance Corporation (LIC) within this year. The IPO is expected to be the biggest in the Indian capital markets given the size and scale of LIC, the country’s oldest and largest life insurer. The finance ministry last week invited bids from transaction advisors, including consulting firms, investment bankers, and financial institutions, for assisting the government in the preparatory processes leading to the IPO. Read in Tamil
What is the size and position of LIC in insurance market?
Even if the government decides to sell 5-10 per cent of its equity in LIC through an IPO, the share sale of LIC, which was set up in 1956, is expected to be the largest. The insurer’s total assets had touched an all-time high of Rs 31.11 lakh crore in 2018-19, an increase of 9.4 per cent. The Corporation realised a profit of Rs 23,621 crore from its equity investment during 2018-19, down 7.89 per cent from Rs 25,646 crore in the previous year. The LIC had 66.24 per cent market share in total first-year premium and 74.71 per cent share in new policies in 2018-19, as per its latest available Annual Report. The government has sought to appoint to two pre-IPO transaction advisors, who should have successfully managed at least one transaction of IPO of a size of at least Rs 5,000 crore, or a capital market transaction of at least Rs 15,000 crore.
How does LIC fit into the overall disinvestment roadmap?
In the Budget 2020-21, the finance ministry had announced plans for IPO of LIC and a proposal to sell the government’s equity in the stressed IDBI Bank to private, retail and institutional investors through the stock exchange. The government expects to raise Rs 90,000 crore through stake sale in LIC and IDBI Bank, and another Rs 1.2 lakh crore through other disinvestments. LIC is also a majority shareholder in IDBI Bank. The government had earlier listed the shares of General Insurance Corporation and New India Assurance through IPOs three years ago.
IPO could bring transparency to LIC’s operations
The government is on course to sell a portion of its equity in LIC as it has not received any opposition to the proposal so far. While stake sale in the country’s largest and oldest life insurer will depend upon market conditions, the Finance Ministry has started work on finalising modalities and seeking necessary approvals. LIC’s initial public offering will be significant in bringing transparency in operations of the Corporation, while enabling the government to raise funds through disinvestment.
What benefits can be expected through the IPO?
An IPO will certainly bring in transparency into affairs of LIC since it will be required to inform financial numbers and other market-related developments on time to the stock exchanges. Investors can benefit from picking up equity in the insurer, which has been making underwriting profit as well as profits on its investments. LIC’s investment in various equity and bond instruments will come under greater scrutiny after its lists on the exchanges.
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