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LIC IPO to be the biggest-ever in Indian stock market history

By MK Shukla & Rakesh Ranjan- 16 Jul 2021


New Delhi (16.07.2021): The LIC IPO, to be issued sometime in Q4FY22, will be the largest-ever in size in the history of Indian stock markets. The actual size, depending on the situation, could run into billions of USD.

The timing of the IPO is significant: by Q4FY22, the government would have a very clear idea about its budgetary deficit and the actual funds mopped through disinvestment against the target of ₹1.75 lakh crores

Also, in the last quarter, stock markets are normally upbeat because of the infusion of fresh funds and the willingness of HNIs to park their funds in quality issues.

To make the IPO successful, different wings of the government are said to have mounted serious efforts and have already started sounding institutional investors.

Following on the CCEA approval to the LIC IPO proposal last week, the DIPAM, which is now under the FinMin, floated on Thursday Requests for Proposals (RFPs) for the appointment of a merchant banker, legal advisor, registrar and share transfer agent, and an advertisement agency to the pre-implementation stage of the  IPO proposal.

One common thread running through three of the tender documents but missing in the legal advisor RFP is: “The potential size of the IPO is expected to be larger than any precedent in Indian markets. In order to achieve a successful IPO, it is the endeavor of the GoI to attract investment from institutional investors, both domestic and global, in addition to the retail investors.”

Tender documents say that the bids for merchant bankers, besides registrar and share transfer agent, will open on August 6 and that for the other two on August 9.

All the RFPs mention that the LIC IPO would include part-sale of government’s stake as well as raising of fresh equity raise through a prospectus based Initial Public Offer] as per SEBI Rules and Regulations.

As to the percentage of the shares to be offloaded, the government may take a call at an appropriate time.

“The percentage of paid-up equity to be issued/divested as part of the IPO will be determined based on the post-issue capital of LIC calculated in consonance with Clause 19 (2) of the Securities Contracts (Regulation) Rules, 1957. A part of the public offering may be reserved for employees and policyholders of LIC,” says the introductory part of the RFPs.

To execute the IPO issue successfully, the government has already completed its homework by notifying all amendments to the LIC Act, 1956.

Further, Milliman Advisors LLP India, who was appointed on December 31, 2020, as the Reporting Actuary for measuring the Embedded Value (EV) of LIC, is going apace with its assigned work. 

The LIC EV determination is a precondition before going public within the meaning of the Insurance Act, 1938, and applicable IRDAI regulations.

The EV is a tool to measure the consolidated value of shareholders’ interest in the life insurance business and it can't but be executed by an independent actuary.

Already, in view of the LIC IPO, the Finance Ministry had relaxed norms for all large companies to step into the stock market, following a SEBI recommendation in this regard.

(By MK Shukla & Rakesh Ranjan)

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