LIC IPO: Foreign Investors Allowed To Buy 20% Of LIC Via Automatic Route; Big Push For Privatization?

Foreign investors might be interested in participating in the mega-IPO. But, the current FDI policy had no mention of foreign investment being made in LIC. LIC is a statutory company created under the LIC Act of 1956

Due to the current FDI policy which limits foreign investments to 20% for public sector banks with the permission of the government, The cabinet has agreed to allow foreign investment of up to 20% for LIC and other such corporate entities.

Why the automatic route? 

Notably, this FDI has been done under the automatic route which is the case of the rest of the insurance industry. This move has been made to speed the funding process, according to one of the sources.

In what way will the increased FDI investment help? 

Increased FDI investment will elevate local capital, encourage technology transfer, and help talent development. This will result in unprecedented economic growth and development across industries.

Life Insurance Corporation (LIC) had submitted draft documents with the market regulator SEBI on 13th February for the sale of a 5% of its share by the government for an estimated Rs. 63,000 crore. This is going to be the country’s largest-ever public offering.

The IPO of around 31.6 crore shares, or 5% of the government holding, is expected to touch D-street in March. Employees and policyholders of the LIC are going to receive a reduction off the starting price of the shares.

LIC’s embedded value

According to the Draught Red Herring Prospectus (DRHP), LIC’s embedded value, which is a measure of the combined shareholders’ worth in an insurance business, has been estimated by international actuarial firm Milliman Advisors to be at Rs 5.4 lakh crore as of September 30, 2021.

The DRHP did not disclose the LIC’s market valuation, according to industry norms, it would be somewhere around three times the embedded value which is approximately Rs. 16 lakh crore.

Till now, the sum raised from Paytm’s IPO in 2021 has been the highest in history. The IPO raised Rs 18,300 crore. This IPO is followed by Coal India (2010) which’s IPO raised roughly Rs 15,500 crore and Reliance Power (2008) which’s IPO raised Rs. 11,700 crore.

Source-https://www.moneycontrol.com/news/business/cabinet-approves-up-to-20-fdi-in-lic-8168341.html/amp?utm_campaign=fullarticle&utm_medium=referral&utm_source=inshorts