LIC IPO 2020 Details: Earlier this year Finance Minister Nirmala Sitharam announced during the 2020-21 budget that the government would sell a part of its holdings in LIC through means of a public listing. Judging by the size of the company it could be the largest IPO the country has seen. The IPO of LIC may even be bigger than this expectation as the government also plans to incentivize the participation of retail investors by offering discounts on IPO price and issuing bonus shares.
Today we take a look at where the IPO stands as we almost near the end of 2020. In this LIC IPO article, we’ll discuss a brief history of IPO, why the government is going for LIC IPO, the Expected dates of LIC IPO, and much more. Let’s get started.
LIC India – Brief History
LIC was founded in the year 1956 and is wholly owned by the government. The state-owned life insurance and investor is the oldest and the largest in the country. The company is headquartered in Mumbai. There are currently 24 insurance companies operating in the country but none of them come close to LIC which holds a 69% market share.
Moreover, As of 2019, Life Insurance Corporation of India is the biggest insurance company in India and had a total life fund of ₹28.3 trillion. The total value of sold policies in the year 2018-19 is ₹21.4 million. LIC settled 26 million claims in 2018–19. It has 290 million policyholders. The company is estimated to have assets worth Rs. 34 trillion.
The government had initially expected to offload a 10% stake. But later revised it to 25% as SEBI guidelines state that within 3 years of listing the minimum public shareholding should be at least 25%. The government is expected to incentivize retail investors with a 10% discount followed by a bonus issue. Of the shares offered 5% of the shares are expected to be reserved for retail investors and employees of LIC.
This IPO is expected to increase transparency in the affairs of the company as all financials will be required to be released to the shareholders. The company’s investments in bonds and equity are expected to come under greater scrutiny post the listing.
(Source: LIC Annual Report 2019-20)
When will the LIC IPO be held?
Currently, the LIC IPO stands delayed due to the COVID-19 pandemic and its occurrence depends on future market conditions. The pandemic has delayed a lot of the pre IPO work.
- IPO Date: Yet to be Announced (Expected Q4 2020/21)
- Price Band: —
- Minimum Lot Size: —
- Issue Size: —
The government still has to value its business and value its physical assets. Valuations of the company are expected to be completed in a short period of time but valuations of its physical assets which is the most crucial part of the pre IPO process may take from 6-8 months. This means that the IPO will not hit the markets this year. The earliest estimates state that the IPO may occur in the 4th quarter of 2020-21.
The LIC IPO 2020 will offer a good opportunity to retail investors and the company’s employees to become investors in one of the most reputed companies in India. Moreover, the IPO may also offer listing day gains to the shareholders. Further, whether LIC Policyholders will get any reserved quota in this IPO is yet to be decided.
Why has the government chosen to disinvest LIC?
The government plan to sell LIC is part of its Rs. 2.1 trillion disinvestment plan which was announced in the budget. The government expects to raise up to Rs. 90,000 crore from LIC and IDBI bank stake sales. Out of this, the government aims to raise Rs.20,000 cr. from sales of IDBI. As of September, the government has raised Rs 4.99 trillion through its disinvestment process. There is very little to rejoice about as the Narendra Modi government will have to use this to try and bridge the budget gap that has now been widened due to the coronavirus lockdown.
The LIC IPO will contribute significantly to the governments’ aims to meet its funding requirements Unfortunately the governments plan to disinvest its stake in LIC and other companies like Air India, BPCL, Concor have been delayed due to the pandemic.
As the government is required to give up 25% of its stake in the company, the proposed IPO is estimated to be worth Rs.3 lac cr. This raises the problem as the market may not find sufficient buyers in India. In order to combat this, the government has decided to disinvest in tranches starting with 10% but this too may not be absorbed by the domestic markets. Hence, the government has looked into listing the company in overseas bourses in order to attract large investors. With the decision still in progress, the government has already received pitches from global stock exchanges.
The Price of the IPO is not known as the price is generally announced a week before the shares are opened up for the subscription. There is a good probability for oversubscription especially after considering that investors around the world and retail investors domestically have been left dry especially if they are IPO hungry as many IPO’s have been derailed.
The LIC listing could turn out to be bigger than expected and could turn LIC into India’s biggest companies in MCAP that can compete with the likes of Reliance and TCS.