Life Insurance Corporation (LIC) has been in news recently as many global brokerage houses and financial institutions are in the race for being appointed as transaction advisors for the initial public offering (IPO) of the country’s largest insurer– the mainstay of this financial year’s ambitious Rs 2.1-trillion disinvestment target.

LIC’s public offer is expected to be the country’s largest-ever, for which the government will engage two pre-IPO transaction advisors.

The Department of Public Asset Management (DIPAM) had invited bids from consulting firms, investment bankers and financial institutions to advise the government on the preparatory processes of the proposed IPO. The last date to submit bids was July 24, which was earlier extended from July 13.

Citibank, CLSA, and Credit Suisse were among the foreign investment banks that applied for the role. Over half a dozen domestic firms, including Axis Capital, SBI Cards, and Edelweiss, are also in the fray. Deloitte India Touche Tohmatsu was the only non-investment bank to apply.

In order to better understand the IPO, let us first understand what an IPO is and what is the size and position of LIC in the Insurance Market of India in terms of market share etc.

What is an IPO?

IPO or Initial Public Offering is a method of raising capital and process by which a company can go public by sale of its stocks to the general public. The company appoints a transactional advisor and a merchant banker who helps in the valuation of the company and deciding an accurate share price to go public.

What is the size and position of LIC?

  • 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.
  • 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 Total Assets Under Management (AUM) of the whole Insurance Industry is Rs. 40 lakh crore, out of which LIC manages Rs. 31 lakh crore
  • 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.

What are the expected benefits of the LIC 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.

In conclusion an IPO of this size will surely break records and also help in bring transparency into LIC. It hopes to fulfill the expected of the government to raise Rs.90,000 crore through selling stake in LIC.

Latest

At the recent United Nations Climate Change Conference at Glasgow (COP26), India pledged to achieve net-zero carbon emissions by 2070. The Centre has committed to installing a non-fossil fuel electricity generation capacity of 500 gigawatts (GW) and sourcing 50% of India’s energy requirement from renewable sources by 2030. The government also aims to reduce 1 […]

Advertisement