Government ready to launch LIC IPO in May, say sources

The government is in touch with bankers and financial advisors on the red herring prospectus

The Centre is ready to launch the Life Insurance Corporation of India's initial public offering early in May this year, sources told CNBC-TV18 on April 5.

Sources added that the government is in touch with bankers and financial advisors on the red herring prospectus (RHP). An RHP, also known as an offer document, is filed by a company with the capital markets regulator Securities and Exchange Board of India (SEBI) ahead of a public listing.

They also added that the government may offer to sell more than 5 percent of its stake in the LIC IPO.

The sources noted that officials are operating in a challenging environment. They added that global uncertainties have now been factored in and market volatility has ebbed.

Government is looking to garner about Rs 50,000 crore ($6.6 billion) from the public offering of state-owned Life Insurance Corporation, according to another news report by Bloomberg. It said that the Centre is hoping to launch the public issue before approvals for the IPO expire on May 12.

Earlier on March 8, the state-owned insurance behemoth received capital markets regulator SEBI's go-ahead to raise funds through an initial share sale, sources privy to the developments told CNBC-TV18.

The government will sell over 31 crore equity shares of LIC, according to the draft red herring prospectus (DRHP) filed with SEBI. A portion of the IPO would be reserved for anchor investors. Also, up to 10 percent of the LIC IPO issue size would be reserved for policyholders.

Also Read | Network18 Exclusive: Sebi approves LIC IPO DRHP

The government was expecting to garner Rs 63,000 crore by selling a 5 percent stake in the life insurance firm to meet the curtailed disinvestment target of Rs 78,000 crore in the current fiscal.

The IPO is offer for sale (OFS) by the Government of India and there is no fresh issue of shares by LIC. The government holds a 100 percent stake or over 632.49 crore shares in LIC. The face value of shares is Rs 10 apiece.

The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC's market valuation would be comparable to top companies like RIL and TCS.

Notably, the government has time till May 12 to launch the LIC IPO without filing fresh papers with market regulator SEBI, an official said. The DHRP was filed on February 13.

"We have a window till May 12 to launch the IPO based on the papers filed with SEBI. We are watching the volatility and will file the RHP giving the price band soon," an official said. The DRHP filed with SEBI had details of the financial results of LIC and also the embedded value till September 2021.

Also Read | LIC India’s profit rises to Rs 235 crore in December quarter

If the government misses the May 12 window available with it, LIC would have to file fresh papers with SEBI giving the results of December quarter and also update the embedded value. LIC's embedded value, which is a measure of the consolidated shareholders value in an insurance company, was pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors. Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would about 3 times the embedded value.

Profit after tax of LIC increased to Rs 234.91 crore ($30.7 million) in the three months to December from Rs 0.91 crore a year earlier, according to the insurer's website. Profit for the nine months ended December climbed to Rs 1,642.78 crore from Rs 7.08 crore a year earlier.

The IPO-bound company had booked profit worth Rs 29,102 crore from the sale of investments in the first six months of the current financial year.

Prior to that, on January 25, LIC had reported a profit after tax of Rs 1,437 crore for the first half of the financial year 2021-22 as compared with Rs 6.14 crore in the year-ago period. Its new business premium growth rate stood at 554.1 per cent in H1FY22, compared with 394.76 per cent during the corresponding period of the preceding financial year, LIC had said.

Its overall total net premiums increased Rs 1,679 crore to Rs 1.86 lakh crore during April-September 2021, from Rs 1.84 lakh crore in the year-ago period.