Upto 74% Of LIC Will Be Sold To Foreign Firms Via FDI Route, Privatization?

The government is considering bringing in foreign direct investment (FDI) in the Life Insurance Corporation of India (LIC) ahead of its IPO.

The proposal is being discussed by the Department of Financial Services and Department of Investment and Public Asset Management (DIPAM).

What This Means

If it is approved, it will next be sent for inter-ministerial discussions and would finally require Cabinet nod.

Allowing FDI could make way for a single overseas investor to buy a large stake in the state-run insurer which enjoys a market share of around 66%.

Any strategic investment would be subject to a limit but the level is not yet determined.

Why 74% FDI Is Not Applicable To LIC

74% FDI is permitted in the insurance sector but this is not applicable to LIC.

This is because LIC is a special entity formed through legislation passed in the Parliament and is administered through a separate LIC Act.

The LIC Act has no provision for foreign investments.

Therefore, the proposed LIC IPO has to be aligned with SEBI norms regarding foreign investor participation.

This development could face opposition from the employees’ body of LIC.

Merchant Bankers Competing For IPO Manager Role

16 merchant bankers are said to be in the race to manage the LIC IPO which will be the biggest share sale in the country’s history.

These bankers will be making a presentation before the DIPAM.

Out of the 16, 7 international bankers including BNP Paribas, Citigroup Global Markets India and DSP Merrill Lynch Ltd (now known as BofA Securities) and HDFC Bank Ltd. and Axis Capital from India are in contention

The Cabinet Committee on Economic Affairs had greenlit the LIC IPO proposal last month.

Companies Hired To Help With IPO

Now, it is up to the ministerial panel known as the Alternative Mechanism on Strategic Disinvestment to decide the quantum of stake to be divested by the government.

The government appointed actuarial firm Milliman Advisors LLP India to assess the embedded value of LIC ahead of its IPO.

Deloitte and SBI Caps have been brought on board to serve as pre-IPO transaction advisors.

LIC IPO And Its Importance To The Govt

The public listing holds great significance for the government since it would go a long way towards helping it meet its disinvestment target of Rs 1.75 lakh crore for 2021-22.

Rs 1 lakh crore is expected to come from the sale of government stakes in public sector banks and financial institutions.

The remaining Rs 75,000 crore would come as CPSE disinvestment receipts.

So far, only Rs 8,368 crore of the target has been reached through minority stake sales in PSU and the sale of SUUTI stake in Axis Bank.

The IPO would also help reduce the budget deficit to 6.8%  of gross domestic product.

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