IPO Update: Government May Offer More Than 5% Stakes in the LIC IPO

The government is poised to launch the LIC IPO. According to the sources, the insurance behemoth’s initial public offering (IPO) is expected to take place in early May.

The state-owned Life Insurance Corporation of India (LIC) filed a revised draught red herring prospectus (DRHP) for the IPO with the Securities and Exchange Board of India (SEBI) a while back (SEBI). The IPO’s updated DRHP is based on the LIC’s December financials.
The SEBI approved the amended DRHP on March 21, but market experts said the DRHP would need to be updated again because the IPO was not expected until the fiscal year 2021-22.
“The government may offer to sell more than 5% in the LIC IPO,” sources claimed, adding that the government may offer to sell more than 5% in the LIC IPO and negotiators are operating in a challenging environment.

The Securities and Exchange Board of India (SEBI) gave LIC permission to collect cash through an initial share offering in March. The IPO was supposed to go live in March, but the Russia-Ukraine situation threw the plans off, as financial markets have been extremely volatile.
The LIC was expected to launch its initial public offering (IPO) in April, but the schedule now appears to be in early May. Several other companies that are awaiting the outcome of the LIC IPO have reportedly postponed their own IPOs. MobiKwik, GoFirst, Delhivery, Oyo, and PharmEasy are just a few of them.
According to the DRHP for the February IPO, the LIC offer is fully an offer for sale (OFS) of 316,249,885 shares by the shareholder, the President of India, acting through the Ministry of Finance. This means the government will sell 5 percent stake via the IPO.

The government holds 100% of LIC, which has total equity of approximately 632 crore shares. While the government aimed for Rs 1.75 trillion in revenue this year, it had expected big-ticket privatization plans to be completed. The goal was lowered to 78,000 crores.
The government’s sale of 31.6 crore shares in LIC, or a 5% stake, is expected to bring in roughly Rs 60,000 crore for the exchequer.

International actuarial firm Milliman Advisors estimated LIC’s embedded value, which is a measure of the consolidated shareholder’s equity in an insurance company, to be at 5.4 lakh crore as of September 30, 2021. Although the LIC’s market value is not disclosed in the DRHP, it is estimated to be around 3 times the embedded value based on industry standards.

LIC’s net profit increased to 235 crores in the third quarter, up from a pitiful 94 lakh the previous year. Similarly, the company’s net profit for the nine months ending in December increased to 1,643 crores from 7 crores the previous year.

The change in the surplus distribution scheme is largely to blame for the rapid increase in LIC profit. The LIC Act was changed to align its surplus distribution model with that of private life insurers.