IPO Update: Government not reducing stakes for at least upcoming 2 years; LIC IPO

Because such a move could impair profits for investors in the massive initial public offering, the Centre is unlikely to lower its shares in Life Insurance Corporation of India (LIC) for at least two years after the insurer’s listing (IPO).

Prospective investors were informed of the government’s position during roadshows after many inquired about the Centre’s plan to reduce its stake in the insurer to meet the minimum public shareholding requirements. To be clear, the Centre stated that any stock dilution in the insurer would not be considered for at least two years in order to avoid any downward pressure on LIC’s shares. The insurer had enough money for the next two years, according to investors.

To fulfil the limited disinvestment target of 78,000 crore in 2021-22, the government expected to raise over 60,000 crore by selling roughly 31.6 crore or 5% of the life insurance firm. Though, at the LIC IPO, the government may consider a share of somewhat more than 5%.

Even with a 5% stake dilution, the LIC IPO would be the largest ever in Indian stock market history. The market value of LIC after it is listed will be equivalent to that of leading firms such as Reliance India Limited (RIL) and Tata Consultancy Services (TCS). The government has until May 12 to launch LIC’s initial public offering (IPO) without having to file new documents with the Securities and Exchange Board of India (SEBI).

The government also stated that it will not sell LIC shares on a regular basis, and that public sector undertakings (PSUs), including banks, have been granted exceptional exemptions from the requirement to keep a minimum amount of public stock. According to the official, the Centre will seek an exception from the MPS requirement for LIC because the company has decided not to reduce its stake below 75% for the first five years after listing. Companies with a market capitalization of more than Rs.1 lakh crore must hold at least 25% public shares for five years after listing.