20% LIC Will Be Bought By Foreign Investors; Govt Changes FEMA Laws To Allow 20% FDI In LIC

Paving way for up to 20% foreign direct investment in the insurance behemoth LIC, the government has amended rules of the Foreign Exchange Management Act (FEMA).

Through the Initial Public Offering (IPO), the government is planning to dilute its stake in LIC. A Draft Red Herring Prospectus (DRHP) before the markets regulator SEBI was filed by the LIC for the IPO.

SEBI, in the last month, gave approval to the draft papers and the insurer is in the process of filing a request for proposal with changes.

On March 14 the Department for Promotion of Industry and Internal Trade (DPIIT), post the Cabinet approval, amended the Foreign Direct Investment (FDI) policy to facilitate overseas investment in LIC ahead of the mega public offer.

FEMA Notification

FEMA notification was required to operationalize the provisions DPIIT issued through a press note, including FDI policy changes that will allow large foreign portfolio investors to subscribe to shares of LIC.

A gazette notification issued recently read that ”These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022”.

A paragraph has been inserted in the existing policy allowing up to 20 per cent FDI in LIC through the automatic route.

As per the present FDI policy, under the government approval route the foreign inflows’ ceiling for public sector banks is 20 per cent. Hence, it was decided that foreign investment of up to 20 per cent in LIC and other such corporate bodies will be allowed.

It said that ”Foreign investment in LIC shall be subject to the provisions of the Life Insurance Corporation Act, 1956, (LIC Act) as amended from time to time and such provisions of the Insurance Act, 1938, as amended from time to time, as are applicable to LIC”.

LIC IPO: Biggest Indian Public Offering

LIC IPO will be the country’s biggest-ever public offering. The stage is set by SEBI and the draft prospectus for sale of a 5 per cent stake by the government for an estimated Rs 63,000 crore has been approved.

The international actuarial firm Milliman Advisors said that the as of September 30, 2021 LIC’s embedded value, a measure of the consolidated shareholders’ value in an insurance company, has been pegged at about Rs 5.4 lakh crore.

Though the market valuation of LIC has not been disclosed by DRHP, as per the industry standards it would be about three times the embedded value, which means it will be around Rs 16 lakh crore.

The LIC public issue is expected to be the biggest IPO in the history of the Indian stock market. Once listed, LIC’s market valuation will be comparable to top companies like RIL and TCS.

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