Life Insurance Corporation of India (LIC) has filed its draft share sale prospectus with capital markets regulator SEBI, paving the way for India’s largest initial public offering (IPO). It is also possible that LIC will become India’s most valuable listed company, toppling Reliance Industries Ltd, after its IPO.

LIC plans to sell 316.25 million shares, or around 5% of its total share capital, says the draft red herring prospectus filed with the Securities and Exchange Board of India (SEBI).

The 65-year-old LIC has a total capital of 6.32 billion shares.

The highly anticipated government-owned LIC IPO is expected to start the listing process soon. (Express photo by Amit Chakravarty)

The IPO is entirely a sale offering, which means the proceeds will go entirely to the government and help it achieve its divestment goal. In the Union budget presented earlier this month, the government had set the divestment revenue at Rs 78,000 crore for this financial year.

According to the offer document, a part of the shares not exceeding 5% of the offer will be reserved for employees. Similarly, another tranche not exceeding 10% will be reserved for eligible policyholders. These are Indian citizens holding LIC policies as of the date of the draft obfuscation prospectus.

The IPO price will be decided in due course, two days before the opening of the public offering, according to the prospectus. He also added that policyholders and employees can benefit from a reduction compared to the price offered to the general public. A minimum of 35 percent of the issue will be reserved for retail investors.

Explain

The issue price is the key

While LIC’s IPO is key to the government’s revised divestment target of Rs 78,000 crore for this financial year, it remains to be seen whether the market has the appetite to absorb a mega issuance at some point. where stock markets experience volatility following a spike in inflation. and rising global interest rates. The issue price will hold the key.

The prospectus also states that the intrinsic value of LIC is Rs 539,686 crore. Intrinsic value is a yardstick used to measure the value of a life insurance company – it is the sum of the present value of all future earnings of the existing business and the shareholders’ net worth. Insurance regulator IRDAI cleared LIC’s IPO last week.

Private life insurance companies currently trade at two to four times their intrinsic value. Using the same yardstick, the market capitalization of LIC could be between Rs 10.8 lakh crore and Rs 21.6 lakh crore. Currently, the most valuable company in India is Reliance Industries Ltd with a market capitalization of Rs 16.1 lakh crore.

A 5% sale, even at a valuation of Rs 10.8 lakh crore, will net the government Rs 54,000 crore. This will be nearly three times the Rs 18,300 crore raised by One 97 Communications Ltd (the owner of Paytm) in its IPO last year.

LIC is the largest life insurer in India with a market share of 64.1% in terms of premiums, a market share of 66.2% in terms of new business premiums, a market share of 74.6 % in terms of the number of individual policies issued as well as by the number of individual agents, which accounted for 55% of all individual agents in India as of March 31, 2021, the prospectus says.

LIC is the largest asset manager in India with assets under management worth Rs 39.6 lakh crore as of September 30, 2021. Assets under management (AUM) of LIC as of March 31, 2021 is more than 3.3 times higher than the total AUM of all private life insurers in India.

The Company may allocate up to 60% of the QIB (Qualified Institutional Buyers) portion to reference investors on a discretionary basis. One-third of the lead investor’s share will be reserved for domestic mutual funds. Kotak, Goldman Sachs, Axis Capital, ICICI Securities, BofA Securities, JM Financial, Citigroup, JP Morgan, Nomura and SBI Capital Markets are the investment bankers on the issue. The IPO is expected to close before the end of the fiscal year ending March 2022.