The government is betting on diluting its stake in state-run LIC via an IPO in the coming fiscal in an attempt to garner enough non-tax revenues to narrow the country’s fiscal deficit.
LIC’s public issue is expected to be the country’s largest-ever and is pegged to be at least ₹1 trillion for just a 10% share sale to the public, said three people directly aware of the insurer’s IPO plans.
Sebi, on Wednesday, eased the minimum public offer (MPO) norms and said that for any company with post issue market capital of above Rs.1 trillion, the IPO size is required to be Rs10,000 crore plus 5% of the incremental market capital amount beyond Rs.1 trillion.
At present, companies with post issue market capital of ₹4,000 crore or more are required to offer at least 10% of the capital to the public in the IPO. Further, such issuers are also required to achieve a minimum public shareholding (MPS) of at least 25% within three years from the date of listing.
The market regulator further relaxed the norms and said that companies with a size of over Rs1 trillion will now be required to achieve at least 10% public shareholding in two years and at least 25% within five years from the date of listing.
This amendment too will particularly help LIC since its size is so large that the market may find it tough to absorb equity papers worth even 5% of LIC in the further public issues that the insurer will need to launch to comply with Sebi’s public shareholding norms post its IPO.
LIC, which is preparing for its IPO and is currently undergoing an evaluation process by actuarial firms, will be the biggest beneficiary of this relaxation by Sebi.
On 1 February, the finance minister, while announcing the budget for fiscal 2022, proposed to amend the LIC Act and bring the rules for LIC under the Companies Act to ensure that the insurer does not face regulatory hurdles while launching its IPO.
LIC, in which the government holds 95%, is the largest insurer in the country with total assets worth over Rs. 34 trillion.
The finance minister said the Central Government will hold at least 75% in LIC for the first five years post the IPO, and subsequently hold at least 51% in the insurer at all times after five years of the proposed IPO.
For the fiscal year 2021, LIC recorded a new business premium of Rs. 1.3 trillion in the April-December period, which is more than double of the total premium collected by all private life insurers together.
A public listing of LIC has been a protracted affair as it required amending the LIC Act. The insurer needed to change its audit and accounting policies; the way it distributes surpluses; and amendments to Sections 24, 28 and 37 of the Act.
Section 24 deals with the way the corporation handles its corpus, Section 28 is about dividend distribution norms and Section 37 provides government guarantee on all its policies.
At present LIC pays 5% of the surplus to the government, while the remaining 95% goes to its policyholders.
In comparison, private insurance companies pay 10% of their surplus to shareholders and the rest goes to policyholders.
Section 24 explains how “the corporation shall have its own fund and all receipts of the corporation shall be credited thereto and all payments of the corporation shall be made therefrom”.
LIC’s equity capital stands at Rs.100 crore, which needed to be increased in order to sell even a 10% stake.
On 1 February, the finance minister proposed to increase the authorised share capital of LIC to Rs. 25,000 crore, divided into 2500 crore shares of Rs. 10 each.
The budget also proposed the way LIC’s board will be structured in accordance with the Companies Act.
LIC may make a reservation of up to 10% of the issue size in favour of its life insurance policyholders as one of the reserved categories in the proposed IPO, said the government.
In terms of payment of dividends by LIC, the government said that no dividend should be paid by LIC for any financial year unless such dividends are paid out of the surpluses and profits made by the insurer.
LIC will not be allowed to pay dividend from its reserves unless it is from free reserves.
LIC can have 15 board members of whom at least one has to be a woman director. There can be four managing directors, of which four can be appointed by the government, who will be whole-time directors of LIC post the IPO.
