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Highlight
- Govt may postpone LIC’s mega IPO and wait for opportune time
- It’s all out war now, situation has to be assessed to go ahead with LIC IPO, government sources
- FM Sitharaman had also indicated to review the IPO in view of the evolving geopolitical situation.
Sources said that with the global financial markets at Russo-Ukraine war, the government may postpone LIC’s mega IPO and wait for an opportune time to get the maximum value of its stake in the state-owned insurance company.
A government source said, “It is all out war now so we have to assess the situation to go ahead with LIC IPO.”
Finance Minister Nirmala Sitharaman had also indicated to review the IPO in view of the evolving geopolitical situation.
“Ideally, I would go ahead with it as we had planned it based on purely Indian ideas for some time,” Sitharaman said in an interview with Hindu Business Line.
“But if global views warrant that I need to see it, I wouldn’t mind seeing it again.” The IPO was expected to hit the market this month.
The Russo-Ukraine war entered its seventh day on Wednesday as fighting intensified in Ukraine’s capital Kyiv and other major cities.
The government was hoping to raise Rs 63,000 crore by selling 5 per cent stake in the life insurance firm to meet its disinvestment target of Rs 78,000 crore in the current fiscal.
If the initial public offering (IPO) is postponed to the next fiscal, the government will miss the revised disinvestment target by a huge margin.
So far this fiscal, the government has raised Rs 12,030 crore through disinvestment of CPSEs and strategic sale of Air India.
The government had earlier projected to raise Rs 1.75 lakh from disinvestment during 2021-22.
IPO is an offer for sale (OFS) by the Government of India and there is no fresh issue of shares by LIC. The government has 100 percent stake or more than 632.49 crore shares in LIC. The face value of the shares is Rs 10 per share.
LIC Public Issue will be the biggest IPO in the history of Indian stock market. Once listed, LIC’s market valuation will be at par with top companies like RIL and TCS.
So far, the amount raised from Paytm’s IPO in 2021 was the biggest ever at Rs 18,300 crore, followed by Coal India (2010) at around Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.
Last week, the government allowed foreign direct investment (FDI) of up to 20 per cent under the automatic route in IPO-bound LIC with an aim to facilitate disinvestment of the country’s largest insurer.
The decision in this regard was taken by the Union Cabinet headed by Prime Minister Narendra Modi. Foreign investors may be interested in participating in the mega IPO.
However, the existing FDI policy did not have any specific provision for foreign investment in LIC, which is a statutory corporation established under the LIC Act, 1956.
Since the foreign inflow limit for public sector banks under the government approval route is 20 per cent, as per the extant FDI policy, it has been decided to allow foreign investment up to 20 per cent for LIC and other such corporate bodies.
Further, to expedite the process of raising capital, such FDI has been placed under the automatic route, as is the case with the rest of the insurance sector, said a source.
Setting the stage for the country’s biggest ever public offering, LIC on February 13 filed draft papers with capital markets regulator SEBI.
The IPO of over 316 crore shares or 5 per cent government stake was expected to hit D-Street in March. Employees and policyholders of the insurance giant will get a discount on the floor price.
According to the draft Red Herring Prospectus (DRHP), the embedded value of LIC, which is a measure of the value of consolidated shareholders in an insurance company, has been pegged at around Rs 5.4 lakh crore by international actuarial firm Milliman as of September 30, 2021. Advisor.
Though DRHP does not disclose the market valuation of LIC, it would be almost three times the embedded value or around Rs 16 lakh crore by industry standards.
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