Today is a very special day for India’s largest insurance company Life Insurance Corporation of India i.e. Life Insurance Corporation of India (LIC). LIC Act was passed by Parliament on 19 June 1956 and under this LIC was established on 1 September 1956. Since then LIC has grown into the largest insurance company in India. Now coming to the present day situation. The central government is preparing to bring the Initial Public Offer (IPO) of LIC. In July itself, the Economic Affairs Committee of the Union Cabinet has approved the IPO of LIC. After the IPO, the company will be listed in the stock market of India. This is expected to meet the disinvestment target of the government.
Earlier Milliman Advisors was appointed to calculate the price of LIC. One of the 16 merchant bankers, including global companies HSBC, Goldman Sachs, Bank of America, Citigroup and BNP Paribas, will manage the company’s public issue. Its name will be decided soon. A group of ministers will work out an alternative framework for strategic disinvestment, in which the offer figure will be decided.
Why is LIC’s bringing IPO?
The central government had set big targets for disinvestment in the last few years, but it could not be met. Efforts to sell stake in Air India and BPCL are being postponed due to many other reasons including Covid-19. It is expected that in this financial year, the government can move forward in this direction.
As far as the current financial year 2021-22 is concerned, the government has set a target of earning Rs 1.75 lakh crore through disinvestment. This will be completed only if LIC’s IPO is successful. Till now the date of LIC’s IPO has not been decided, but it is expected that it will get listed in the third or fourth quarter.
How will this IPO prove beneficial for the policyholders?
The government has said that it will reserve 10% of the shares from the IPO issue size of LIC for policy holders. In the changes made in the LIC Act in 2021, it has been said that just as shares are reserved for employees in a public issue, the same reservation will be made for those holding LIC policies. It will be on competitive basis.
Markets regulator SEBI regulations state that in any issue not more than 10% of the proposed issue price shall be under employees and reservations. The law of the market also states that the company can issue shares to the employees by giving a maximum discount of 10% of the floor price. There are reports that the government may offer LIC policyholders a discount on the issue price.
At present, LIC pays 5% of its surplus to the government and the rest to the policy holders. After getting listed, LIC will have to distribute its profit as dividend with the shareholders. This would require a change in the process. However, the sovereign guarantee given by the government on the policy will continue even after the IPO. That is, if for some reason the company fails to pay the claim, then the government will pay it.
