The Centre has invited up to two pre-IPO transaction advisors, for partial divestment of its stake in the Life Insurance Corporation of India (LIC), on Friday.
It has proposed the initial public offering (IPO) of IPO.
The government will most likely sell about 8-10% of its stake in India’s largest insurer and institutional investor, through the initial public offering.
For this purpose, the Department of Investment and Public Asset Management (Dipam), under the finance ministry has issued a RFP (Request for Proposal), in order for the pre-transaction advisors to engage in the partial disinvestment of government’s holding in LIC through IPO.
The major aim of this engagement of pre-IPO transaction advisors would be to make significant amendments in the LIC Act.
LIC Size and Valuation
As of today, there are 24 life insurers in India, out of which LIC is the largest. It holds a market share of 69% in fiscal 2020.
As per the Insurance Regulatory and Development Authority, the state insurer made a total first year premium of Rs. 1.78 trillion in FY20, which created a y-o-y increment of 25.2%.
LIC’s current valuation is between Rs 9-10 lakh crore.
This means even an 8% sale of stake by the government will create an IPO worth Rs 80,000-90,000 crore.
The Dipam has made clear that the biggest-ever IPO seen in India will appoint only up to 2 pre-IPO transaction advisors.
Requirements of Pre-IPO Transaction Advisors
According to the tender documents,
- The advisor must be from “reputed professional consulting firms/ investment bankers/ merchant bankers/ financial institutions/ banks, independently (not in consortium) for facilitating or assisting Dipam in the preparatory processes leading to the IPO of LIC India”.
- The bidder should also have an experience of handling at least one IPO of a minimum size of Rs 5,000 crore between 1 April, 2017, and 31 March, 2020, or
- The bidder should have managed a capital market transaction of Rs 15,000 crore or more during this period.
Currently, the government holds 95% stake in LIC. The last date for bid submission has been set to July 13, while the bids will open to the public from July 14.
The fee quoted by the potential advisor for the deal should be a minimum of Re 1.
What will Advisors Do?
Dipam also announced on the same day (Friday) that the advisors will have to evaluate LIC’s capital structure.
They will have to advise the government and LIC on various issues like, optimal capital structure including authorised capital, face value and bonus ratio including any other alternatives to restructure the capital base and others.
They will help LIC prepare restated consolidated financial statements for the past three years for the LIC Group including its subsidiaries, branches and overseas operations.
They will have to support LIC in its preparation for the IPO, including matters relating to compliances with Sebi and Irdai’s listing regulations.