LIC stake sale: Government exercises green shoe option after institutional book sees robust demand

The government's Offer for Sale (OFS) in Life Insurance Corporation of India (LIC) received a robust response from institutional investors on Tuesday, prompting it to exercise the green shoe option. The retail portion of the issue opens on Wednesday, with eligible investors set to receive a ₹10 discount to the final discovered price.

Department of Investment and Public Asset Management (DIPAM) Secretary Arunish Chawla said the institutional portion of the OFS was oversubscribed 3.32 times its base size, underscoring strong investor confidence.

"The Offer for Sale in LIC received an overwhelming response from institutional investors and was oversubscribed 3.32 times of its base size. This enthusiastic participation reflects robust investor confidence and the depth of India's capital markets. In view of the exceptional demand, the Government has decided to exercise the green shoe option. Retail investors get to bid tomorrow," he said.

Institutional investors

Institutional investors submitted bids worth nearly ₹36,400 crore, applying for more than 94.45 crore shares at an indicative price of ₹383.84 per share.

The government is selling up to 6.5% stake, or over 82.22 crore shares, in India's largest insurer through a two-day OFS. The issue comprises a 2.5% base offer and a 4% green shoe option, with a floor price of ₹382 per share. At this price, the sale could mobilise around ₹31,000 crore for the government's disinvestment programme.

Why LIC shares fell

The floor price was fixed at nearly an 11% discount to LIC's previous closing price before the OFS announcement. Consequently, the stock declined 7.86% on Tuesday to close at ₹391 on the BSE.

The decline largely reflects the discounted pricing and the large volume of shares entering the market rather than any deterioration in LIC's business fundamentals. Such supply-driven pressure is common during large stake sales.

Unlike a fresh issue, an OFS involves an existing shareholder selling shares through the stock exchange. In this case, the Government of India is reducing its holding, while LIC is neither issuing new shares nor raising fresh capital. The proceeds from the sale will accrue entirely to the government.

LIC's shareholding

The OFS is expected to help LIC meet the Securities and Exchange Board of India's (Sebi) minimum public shareholding requirement well ahead of the regulatory deadline.

The government currently owns 96.5% of LIC, with public shareholders holding only 3.5%. If the entire issue is subscribed, public shareholding will increase to 10%, improving liquidity and making the stock more attractive to institutional investors. Sebi had given LIC until May 16, 2027, to achieve the minimum public shareholding norm.

Retail investors participating in the OFS will receive a ₹10 discount to the institutional cut-off price. If the final discovered price remains at the floor price of ₹382, retail investors would effectively acquire the shares at ₹372.

LIC's fundamentals

Despite the short-term pressure on the share price, LIC reported healthy financial performance in FY26. The insurer's Value of New Business (VNB) rose 41.6% to ₹14,179 crore, while its VNB margin improved to 21.2%, supported by a higher contribution from non-participating products.

Net profit increased 19.3% to ₹57,419 crore, while premium income grew 9.8% to ₹5.36 lakh crore.

For long-term investors, the OFS provides an opportunity to buy LIC shares at a discounted price. However, future returns will depend primarily on the insurer's ability to sustain profitability, improve its product mix, strengthen policy persistency and defend its market share, rather than on the government's stake sale alone.