With the Modi government proposing to put a part of its stake in insurance behemoth LIC on the block, speculations in the market are that the issue may become among India's biggest initial public offer (IPO ) ever. Coal India was the biggest IPO in India when the state-run firm raised Rs 15,200 crore in 2010.
Finance minister Nirmala Sitharaman during her second Budget speech on February 1 announced stake sale in the insurer in the next fiscal.
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Explaining the rationale behind stake sale in LIC, FM said, "Listing of companies on stock exchanges disciplines a company and provides access to financial markets and unlocks its value. It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO)."
Here's a look at five things to know about the upcoming IPO of LIC.
- Government owns 100% stake in LIC and is not likely to sell more than 10% stake in the public sector insurance firm, according to media reports. Since LIC is governed by LIC Act, before the IPO process, the Act will have to be amended and the corporation's capital structure will have to be changed.
- LIC IPO is likely to be held in second half of next fiscal. The listing of insurer will make it one of India's biggest companies in terms of market capitalisation along with Reliance Industries, TCS and HDFC Bank. The government firm is expected to fetch a valuation of around Rs 8-10 lakh crore , say experts.
- Modi government has set an ambitious divestment target of Rs 2.1 lakh crore for FY21 and expects to garner nearly Rs 70,000 crore through partial stake sale in LIC. Experts believe the stake sale will allow government to meet its highest ever disinvestment target and attract foreign investors.
- LIC's gross NPAs rose to 6.10 per cent in the first six months (April-September) of 2019-20. Gross NPAs have almost double in the last five years. The insurer always maintained a stable 1.5-2 per cent gross NPAs.
- LIC is the country's largest insurer with a market share of 76.28% in number of policies and 71% in first-year premiums. LIC has many subsidiaries including IDBI Bank. It bought a controlling stake in IDBI Bank last year. LIC recorded assets under management of Rs 31 lakh crore in 2019.
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By Aseem Thapliyal