LIC’s assets under management (AUM) at a massive Rs 31 lakh crore is one-sixth the size of India’s GDP. LIC’s assets under management (AUM) at a massive Rs 31 lakh crore is one-sixth the size of India’s GDP.
Budget 2020 India: The mega LIC IPO announced by Finance Minister Nirmala Sitharaman in her Union Budget 2020 presentation today may have its share of challenges before it sees the light of day. India’s largest and only state-run life insurer is a behemoth with investments spread across capital markets. The PSU insurance company is expected to invest up to Rs 72,000 crore in India’s equity markets alone in the current financial year 2019-20. LIC’s assets under management (AUM) at a massive Rs 31 lakh crore is one-sixth the size of India’s GDP.
Nirmala Sitharaman in her Budget speech informed the parliament that the Narendra Modi-government is planning to raise funds by selling part of its holding in the PSU behemoth Life Insurance Corporation of India. “Listing of companies on stock exchanges discipline a company and provides access to financial markets and unlocks its value… The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO),” Nirmala Sitharaman said.
How to sell?
However, it may not be an easy task. “The valuation of LIC IPO will be the biggest challenge,” Rakesh Nangia, Chairman, Nangia Andersen Consulting, told Financial Express Online. “Further, LIC is the shining star and the government will have to tread it carefully,” he added. Also, listing LIC on stock exchanges may limit the government’s hand in bringing in further equity investments into PSUs needing money. “LIC has been used in the past as a sovereign fund to support market sentiments in the past. With its disinvestment, such direct involvement of the government in the market, will get truncated,” Vishwas Panjiar, Partner Nangia Andersen LLP said.
The government owns the entire 100 per cent stake in LIC and is a big investor in share sales, including IPOs of state-run companies. This year’s share sale included Rail Vikas Nigam and IRCTC IPO. The government had listed the shares of General Insurance Corporation and New India Assurance through IPOs three years ago. During the financial year 2018-2019, LIC had generated a valuation surplus of Rs 53,214.41 crore. This is for the first time in LIC’s history that valuation surplus has crossed Rs 50,000 crore, the insurer said in a statement.
Who will buy?
LIC’s own issues are not the only challenge the company would face in going public. It also remains to be seen if the Indian share market is ready to absorb such a large public issue. “Whilst it will definitely help deepen the markets, given that SEBI regulations need a minimum dilution of 10 per cent to the public, it is unclear if there is enough liquidity for such a large sized IPO,” Aditya Cheriyan, Partner, Khaitan & Co said. “Additionally, LIC has been a port of call for various PSU fund raises in the past. Once a behemoth the size of LIC goes for listing, it will be interesting to see if other private life insurance companies will still be able to attract funds at expected valuation,” Aditya Cheriyan added.
Rakesh Nangia too was not very optimistic on LIC’s public issue. “It is indeed the flagship asset in the government chest. The size of the IPO will determine the extent of liquidity it will suck out, but Indian markets do not have depth to take the issue of a very size,” he said. Last year in November, LIC Chairman MR Kumar said that it’s too early for LIC to go public. He had also said that the insurer sees plenty of high growth from here despite the ongoing slowdown in the economy, ET Now reported.