Cabinet approves up to 20% FDI in LIC
Ahead of the IPO, the Cabinet approves a 20% FDI in LIC via the automatic route. The current FDI policy allows for 74% foreign investment in the insurance sector via the automatic route. These rules, however, do not apply to the Life Insurance Corporation of India (LIC), which is governed by a separate LIC Act.
Cabinet approved the LIC initial public offering in July 2021. On February 13, the insurance behemoth submitted draught papers to capital market regulator Sebi for the government’s sale of a 5% stake for an estimated Rs 63,000 crore.
The initial public offering of over 31.6 crore shares, or a 5% government stake, is expected to be listed on D-street in March. Employees and policyholders of the insurance behemoth would receive a discount off the starting price.
According to the draught red herring prospectus (DRHP), LIC’s embedded value, which is a measure of the consolidated shareholders’ value in an insurance company, has been estimated by international actuarial firm Milliman Advisors to be around Rs 5.4 lakh crore as of September 30, 2021.
The LIC public offering would be the largest IPO in Indian stock market history. Once listed, LIC’s market capitalization would be comparable to that of top companies such as RIL and TCS.
The Department for Promotion of Industry and Internal Trade (DPIIT) had mooted the proposal after taking views from the finance ministry. The Cabinet had in July last year approved the initial public offering (IPO) of LIC and the stake sale is being planned for the current March quarter. Since the FDI ceiling for public sector banks is 20 per cent under the approval route, a similar limit has been kept for FDI in LIC.
The Cabinet was expected to approve the proposal to allow FDI in LIC in order to facilitate participation of foreign funds in the state-owned insurance behemoth’s upcoming initial public offering. The Union Cabinet and Cabinet Committee on Economic Affairs meet was scheduled today, sources had earlier informed. It is seen as a “crucial move” as the government plans to sell stake via IPO by March 2022.
