In IPO-Bound LIC, Cabinet Clears Up To 20% Foreign Investment: Sources

Paving the way for foreign funds to participate in the much awaited initial public offer (IPO) of Life Insurance Corporation of India (LIC), the union cabinet on Saturday okayed up to 20 per cent foreign direct investment (FDI) under automatic route in the state-owned insurer.

Official sources said that the decision was taken during the cabinet meeting held earlier in the day. They added that in the FDI policy a special provision has been included to allow 20 per cent foreign investment through automatic route.

This has been done because in the present FDI policy, the foreign inflows ceiling for public sector banks is 20 per cent under government approval route, it has been decided to allow foreign investment of up to 20 per cent for LIC and such other corporate bodies.

The automatic route, sources informed, has been inserted as the government is keen to fast track fund raising process and facilitate stake sale in LIC through the IPO within this fiscal itself.

The cabinet decided to allow 20 per cent FDI through automatic route in LIC as there is no such provision in LIC Act 1956, Insurance Act 1938 and even in the Insurance Regulatory and Development Authority Act of 1999.

Earlier, LIC on February 13 had filed draft papers with capital market regulator Securities and Exchange Board of India (SEBI) for the sale of 5 per cent stake by the government for an estimated Rs 63,000 crore.

The IPO of over 31.6 crore shares or 5 per cent government stake is likely to hit markets in March. Employees and policyholders of the insurance behemoth would get a discount over the floor price.

According to the draft red herring prospectus (DRHP), LIC's embedded value, which is a measure of the consolidated shareholders value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.

Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around Rs 16 lakh crore.

The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC's market valuation would be comparable to top companies like Reliance Industries Limited and Tata Consultancy Services.

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