The government of India has been planning to divest its stake in LIC for quite a while now.
LIC’s (Life Insurance Corporation) mega initial public offer, may not just be an offer for sale (OFS) of the Government of India’s stake, but could also include a fresh issue of equity shares by the insurance major. The department of investment and public asset management (DIPAM) on Thursday issued a request for proposal for bankers, registrars, and legal advisors to the issue stating that the listing of shares of the LIC on stock exchanges would entail part-sale of the Government’s stake in LIC and raising for fresh equity share capital. LIC’s IPO is expected to be the biggest such issue to hit Dalal Street ever.
The government of India has been planning to divest its stake in the insurance giant for quite a while now. However, the plan to issue fresh equity shares is rather new and unexpected. The size of the issue has not been decided yet. “The percentage of paid-up equity to be issued/divested as part of the IPO will be determined based on the post-issue capital of LICI calculated in consonance with the clause 19 (2) of the Securities Contracts (Regulation) Rules, 1957 (SCRR),” the RFP said.
“The Fresh issue portion was unexpected,” Deepak Jasani, Head of Retail Research, HDFC Securities, told Financial Express Online. “LIC may not want to come to the market again for another 2-3 years. To beef up the capital adequacy, after clean up of LIC’s books, for the coming 2-3 years they may want to have that option ready,” Deepak Jasani added. He further said that the company may or may not even exercise the fresh issue option going forward. Although LIC’s IPO process has been kickstarted by the government, it is still in a very early stage.
The government had recently amended IPO rules of listing for companies with more than Rs 1 lakh crore market capitalization before listing. According to the amendment, such companies can now sell as low as 5% of their shares through the IPO. However, such companies will need to increase their public shareholding to 10% in two years and increase the same to 25% within five years. To facilitate the IPO, the government has also given its nod to raising the insurance behemoth’s authorized share capital to Rs 25,000 crore, said Aditya Kondawar, Founder, COO, JST Investments.
LIC’s IPO is a much-awaited one and could hit the market by January next year. “The government will need to bring changes to laws in the monsoon session to help quicken the timing of LIC’s IPO. If that happens and laws get amended, the earliest LIC IPO could come is in January 2022. A lot will depend on the legislative speed and market conditions as well,” Deepak Jasani said. LIC’s public issue could beat the recently announced Paytm IPO in size and maybe worth Rs 65,000-75,000 crore.