- LIC has filed its DHRP with SEBI for selling 5%, i.e., 31.62 Cr shares.
- The issue size could range from ₹ 53,500 crores to ₹ 93,625 crores, and the issue price from ₹ 1,693- ₹ 2,962 per share.
- This is purely an offer for sale by the promoters and LIC will not be receiving the proceeds. It will help the government to achieve its divestment target.
- LIC has a dominant position in the market with a 66% market share in the new business premium, however, it is losing market share to private players as they have a diversified product mix and strong distribution channels.
Insurance behemoth Life Insurance Corporation of India (LIC) filed its draft red herring prospectus (DHRP) with the Securities and Exchange Board of India (SEBI) on Sunday evening.
This will be the largest ever IPO in India, even larger than digital payments firm Paytm which raised ₹18,300 crores last year.
The IPO(Initial Public Offer) of the state-run insurer is an offer for sale of 31,62,49,885 equity shares by its promoter, i.e, the President of India acting through the ministry of finance, Government of India.
The issue size could range from ₹ 53,500 crores to ₹ 93,625 crores, and the issue price from ₹ 1,693- ₹ 2962 per share. The government has a total of 6,325 million shares which is 100% of the total equity in the company.
Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey, in a Twitter post, said, “The IPO is 100 per cent OFS (offer for sale) by the Government of India and no fresh issue of shares by LIC.
For filing valuation about 316 million shares are on offer, representing 5 per cent equity. LIC has a 66 per cent market share in new business premia with 283 million policies and 1.35 million agents as of March 31, 2021. The embedded value of LIC as of September 30, 2021, is Rs 5,39,686 crore (about Rs 5.4 trillion).”
LIC will not receive any proceeds from the public issue, since it is an offer for sale. These proceeds are important for the government to be able to meet its divestment target which is ₹78,000 crores. So far, the centre has mopped up approximately 12,000 crores through divestment.
On September 30, 2021, Milliman Advisors LLP, an actuarial firm has estimated LIC’s embedded value at ₹5.39 trillion in September. The issue size is not mentioned in the DHRP. The embedded value is used to estimate the consolidated value of shareholders’ interest in an insurer.
According to the DHRP, the employee reservation portion shall not exceed 5% of the equity share capital post the offer and the policy reservation portion shall not exceed 10% of the offered size.
Foreign investors have pulled out more than $ 6 billion from the market and LIC’s IPO at this time will test the appetite of the domestic market.
Ten investment banks: Axis Capital, Kotak Mahindra Capital Company, ICICI Securities, BofA Securities India, Goldman Sachs (India) Securities, JP Morgan India, JM Financial, Citigroup Global Markets India, Nomura Financial Advisory and Securities (India) and SBI Capital Markets are handling LICs share sale.
LIC earned a net premium of ₹1.87 trillion, and ₹1.24 trillion in interest, dividends and rent, in the first half of FY22. It received ₹ 23,246 crores from the sale or redemption of investments. It earned a net profit of ₹1,504 crores during the same period. It bought down its gross NPA (non-performing assets) ratio in the debt portfolio to 6.57% at the end of September quarter FY22.
LIC has a dominant position in the market with a 66% market share in the new business premium, however, it is losing market share to private players as they have a diversified product mix and strong distribution channels.
LIC’s AUM (assets under management) were 39.6 trillion as in September last year and this is 3.3 times higher than the total AUM of all private players in life insurance in India, put together and 1.1 times the AUM of the entire mutual fund industry in India.
It is expected that the SEBI will give a nod to the IPO in another three weeks and the public issue will happen before March 31st this year.
Here are some of the risks and uncertainties in the IPO:
- The pandemic could adversely affect all aspects of the business, like the ability of its agents to sell products, increase in expenses due to changes in regulations, adverse effects on its investment portfolio and operational effectiveness and increasing risks in business.
- Its brand name, business, financial condition, cash flows and results of operations, may be affected by unfavourable publicity.
- LIC is subject to enhanced regulatory supervision measures.
- The risk management policies, procedures and internal controls, and the risk management tools may not be adequate or effective.
- There are significant technical complexities in the calculation of its embedded value and any change in key assumptions could materially change its embedded value.
- The profitability of the company may be adversely and materially affected by interest rate fluctuations.
- Business, financial condition and results of operations will get adversely and materially affected If actual claims experienced and other parameters are different from the assumptions used in pricing the products and setting reserves for the products.
- The segregation of the corporation’s life fund into a participating policyholders’ fund and a non-participating policyholders’ fund, effective September 30, 2021, may affect business, financial condition, results of operations and cash flows.
