LIC IPO: Increase in surplus transfer to shareholders won’t impact policyholders, says DIPAM secretary Tuhin Kanta Pandey

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October 18, 2021 3:30 AM

While the valuation of the insurer will be known closer to the listing, it is believed to be worth Rs 8-11.5 lakh crore, meaning a 10% stake sale could fetch the government around Rs 80,000-1,00,000 crore.

LIC’s initial public offer (IPO), which will be the largest ever IPO in India, is expected in March 2022.LIC’s initial public offer (IPO), which will be the largest ever IPO in India, is expected in March 2022.

The bonuses committed to policyholders will not be impacted after the mega listing of Life Insurance Corporation (LIC) even though its annual surplus transfer to policyholders’ fund will decline to 90% from 95% as is the case in the private insurance industry.

“In principle, the policyholders will be fully taken care of for whatever has been committed to them. Bonus to policyholders is not going to be reduced,” department of investment and public asset management (DIPAM) secretary Tuhin Kanta Pandey told FE.

So far, LIC was paying 95% of its surplus to policyholders and 5% to the government. Section 28 of LIC Act was amended through the Finance Act 2021 to change the ratio to 90:10 for policyholders and shareholders respectively when it becomes a joint-stock company after the IPO. According to the regulations by the Insurance Regulatory and Development Authority of India, the shareholders were entitled to 10% of the surplus.

LIC’s initial public offer (IPO), which will be the largest ever IPO in India, is expected in March 2022. The IPO could include offloading of up to 10% government stake and some fresh equity issuance by the insurer for business expansion plans. While the valuation of the insurer will be known closer to the listing, it is believed to be worth Rs 8-11.5 lakh crore, meaning a 10% stake sale could fetch the government around Rs 80,000-1,00,000 crore.

“The size of the IPO will be decided after the valuation exercise is completed. Accounting transition is also going on (restating books of accounts in compliance with the Companies Act). The DRHP will be filed after books of accounts till September are ready…by December-January,” Pandey had said recently.

Of the disinvestment target of Rs 1.75 lakh crore for FY22, the Centre has budgeted Rs 75,000 crore from the privatization of some CPSEs such as BPCL and minority stake sales in CPSEs and another Rs 1 lakh crore from disinvestment of government stake in “public sector financial institutions” (read LIC) and banks. So, LIC IPO is crucial if the government has to reach close to the FY22 disinvestment target.

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