- The much-awaited mega initial public offering (IPO) of LIC India — potentially India’s largest-ever — could turn out to be much larger than anticipated.
Life Insurance Corporation of India (LIC)’s much-awaited mega initial public offering (IPO) — potentially India’s largest-ever — could turn out to be much larger than anticipated.
A plan to sell up to 25 percent stake in the state-run insurer — India’s largest — is on the cards in one or more tranches, said top government sources. Retail investors have plenty to celebrate because they are expecting a bonus and discount by the government, these sources said.
“To the ministries concerned, SEBI, IRDA, and NITI, the Department of Financial Services under the Ministry of Finance has floated a draught Cabinet Note for stake sale in LIC,” one of the persons listed above said.
“There was a plan to dilute government shareholding from 100% to 75% in LIC in one or more tranches,” one of the persons familiar with the matter said.
The government of Narendra Modi hopes that LIC IPO will help plug a burgeoning budget deficit that has expanded further due to the lockdown of coronavirus. The government is keen on market borrowings to avoid the sharp revenue downturn due to the nationwide lockout that has devastated businesses.
In this strategy, the selling of the LIC stake is expected to play a starring role. Just 10 percent of the insurer will be offloaded earlier, there was talk.
Now it appears that the government will go ahead with a 10 percent stake sale in the initial process and the remaining stake sale in more than one tranche. That’s because SEBI’s capital markets regulator guidelines require that the minimum public shareholding should be at least 25 percent within three years of listing, the persons listed above said.
The government is likely to promote retail investor participation by offering up to 10 percent discount during the stake sale. The discount can also be offered to LIC employees.
Up to 5 percent of shares can be reserved for both — institutional investors and employees. However, the final decision on a share reservation and discount will be made by Alternative Mechanism (a committee of ministers), which will be created after approval by the cabinet.
Another crucial aspect of stake selling may be the government’s plan to give bonus shares in the initial days. Given that LIC’s paid-up capital is only Rs 100 crore — an inconsistent sum — restructuring of the equity is possible by partially capitalizing the reserves.
Therefore the government could introduce a draught cabinet note recommending the capitalization of reserves by issuing the bonus shares.
