LIC IPO: Reduced size, tentative date, how policyholders can apply, and more

The initial public offering (IPO) of the state-owned Life Insurance Corporation of India (LIC) will hit the markers next month and the government is likely to sell a 3.5 per cent stake.

According to reports, the government is likely to dilute its 3.5 per cent stake for ₹21,000 crore, valuing the insurance behemoth at ₹6 lakh-crore. Earlier, it had said it will sell 5 per cent.

Also read: Govt reviews FDI policy to allow 20% FDI in LIC

In February, LIC had filed draft papers with Sebi wherein it had said that the government will sell a 5 per cent stake or 31.6 crore shares in the country’s largest insurer.

According to draft papers, the government holds a 100 per cent stake or over 632.49 crore shares in LIC. The face value of shares is ₹10 apiece.

Tentative date

“LIC IPO is likely to come to the market in May first week. A 3.5 per cent stake dilution, subject to regulatory approval, is likely” an official told PTI on Saturday (April 23).

LIC is likely to file the red herring prospectus with market regulator SEBI by April 27. The employees and policyholders of the insurance behemoth would get a discount over the floor price.

Also read: LIC reports Rs 235 crore profit

The IPO plans faced headwinds due to the ongoing volatility in stock markets due to Russia-Ukraine war, forcing the government to cut the issue size to 3.5 per cent.

An investment banking source told Reuters that there is no demand in the market for IPOs at the moment. “There is absolutely no demand in the market right now for IPOs. Considering the volatility in the market, investors are continuing to remain cautious. At such times doing a higher stake sale does not make sense.”

Biggest IPO

LIC’s embedded value, which is a measure of the consolidated shareholders’ value in an insurance company, has been pegged at about ₹5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.

The LIC IPO would be the biggest IPO in the history of the Indian stock market and once listed, LIC’s market valuation would be comparable to top companies like RIL and TCS.

So far, the amount mobilised from IPO of Paytm in 2021 was the largest ever at ₹18,300 crore, followed by Coal India (2010) at nearly ₹15,500 crore and Reliance Power (2008) at ₹11,700 crore.

As per norms, up to 5% of the issue size can be reserved for employees and up to 10% for policyholders. LIC has reserved up to 35% of its total IPO size for retail investors. The maximum bid amount under the Policyholder Reservation Portion by an eligible policyholder will not exceed ₹200,000 (net of Policyholder Discount).

How policyholders can apply

The policyholders can apply for LIC IPO through their own Demat accounts or through stockbrokers’ investing websites. Another option is Applications Supported by Blocked Amount (ABSA). Under this, ABSA bidder’s full bid amount will be blocked by the bank. Also, one can use UPI payment method through stockbrokers.

LIC policyholders will be allotted shares from their 10 per cent quota. But this applies only when their LIC policy and PAN are linked. This can be checked at linkpan.licindia.in/UIDSeedingWebApp/getPolicyPANStatus.

‘No greenshoe option’

Up to 50 per cent of the net offer is allocated on a proportionate basis to Qualified Institutional Buyers (QIBs), and up to 60 per cent of the QIB portion can be allocated to anchor investors on a discretionary basis. One-third of the anchor investor portion shall be reserved for domestic mutual funds.

“No greenshoe option (over-allotment option) is contemplated under the offer,” LIC said in the draft papers filed with SEBI in February.

Further, 5 per cent of the net QIB portion will be available for allocation on a proportionate basis only to mutual funds, and the remainder of the Net QIB Portion shall be available for allocation on a proportionate basis to all QIBs, including mutual funds, subject to valid bids being received at or above the offer price.

“The portion reserved for retail investors requires about ₹20,000 crore to come in from retail buyers. Based on our market assessment, currently the retail demand is not as much to bid for the entire quota of shares,” an official told PTI.

LIC’s share capital was raised from ₹100 crore to ₹6,325 crore in September last year to help facilitate the IPO.

There are currently 24 life insurance companies in India, with LIC being the sole public player. The size of the Indian life insurance industry was ₹6.2 trillion on a total-premium basis in Fiscal 2021, up from ₹5.7 trillion in fiscal 2020.