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Cabinet allows up to 20% FDI in LIC ahead of IPO
The decision has been taken keeping the enormous size of the IPO and feedback from issue advisors, and interests of the global investor community in mind, they said requesting anonymity.
The Union cabinet chaired by Prime Minister Narendra Modi on Saturday allowed up to 20% foreign direct investment (FDI) in state-run Life Insurance Corporation (LIC) under the automatic route, paving the way for participation of overseas funds in one of the country’s biggest initial public offerings (IPOs), expected next month, two officials aware of the development said.
The decision has been taken keeping the enormous size of the IPO and feedback from issue advisors, and interests of the global investor community in mind, they said requesting anonymity. The automatic route is non-restrictive for foreign investors as under this arrangement they do not require prior government approval.
One of the officials said the FDI provisions, however, ensure that the government’s ownership and management control remain intact. “According to the LIC Amendment Act, GoI [Government of India] has to always keep majority ownership and control of 51% and above. There are also single investor restrictions in the Act,” he said.
“In order to enable FIIs/FPIs [foreign institutional investors/foreign portfolio investors], specific enablement was necessary in FDI policy,” he added. As LIC is a statutory corporation established under the LIC Act, 1956 with 100% government’s shareholding, the law did not have any specific provision for foreign investment in the insurer. The move is in line with existing FDI norms for the insurance sector.
The government on February 13 filed the draft red herring prospectus (DRHP) to sell 5% of its equity stake in LIC next month while allowing participation of all types of institutional and retail investors, including LIC policyholders and employees, a second official said. According to analysts, the value of the IPO is estimated around ₹65,000 crore. Its embedded value is pegged at ₹5.4 lakh crore. The DRHP does not, however, disclose the market valuation of LIC. According to analysts it could be about around ₹16 lakh crore.
The Cabinet nod will pave the way for the government to launch roadshows with foreign investors in key countries, the second official said, who ruled out any significant impact of the current Russia-Ukraine crisis on the investors’ sentiment. “In fact, India is better positioned both strategically as well as in terms of its robust economic growth. Investors would like to invest in India for political and economic stability,” he added.
According to the DRHP, LIC’s IPO involves over 316 million shares or 5% government stake. According to the second official, all efforts are in the direction to conclude this transaction by March 31. Discounts are expected for retail investors such as policyholders of LIC, he added.
Earlier, Tuhin Kanta Pandey, secretary at the department of investment and public asset management (DIPAM), told HT that LIC policyholders are likely to get a discount to buy shares in the IPO.
LIC is India’s leading insurance company, with more than ₹30 lakh crore in assets under management. The number of individuals paying premium for life policies was more than 210 million as on February 28, 2021, official data showed. Its market share in terms of the number of policies issued was 74.58% and 66.18% in terms of first-year premium income in 2020-21.
