LIC files papers for India's biggest IPO
The Life Insurance Corporation of India (LIC) has filed the draft share sale documents for its initial public offering (IPO) with the markets regulator Securities and Exchange Board of India (SEBI). According to the draft red herring prospectus (DRHP), about 31.6 crore shares, representing 5% of LIC's equity, will be offered. The offer was approved by the LIC Board of Directors on February 11.
- The development opens the door for India's largest IPO, which was announced last year during the Budget presentation.
- LIC is currently owned entirely by the government. It is expected to become the country's largest firm by market capitalization once it gets listed.
- The government's dependency on LIC's listing is critical to reach the lowered revenue projections of Rs. 78,000 crore for this fiscal year.
Employees will be entitled to a portion of the shares not exceeding 5% of the total offer, according to the offer document. Similarly, a part of the proceeds, not more than 10%, will be set aside for qualified policyholders. These are Indian nationals holding valid LIC policies as on the date of the draft red herring prospectus.
According to the prospectus, the IPO pricing will be determined in due course, two days before the public offering opens. It also said that policyholders and employees may get a discount compared to the price offered to the general public. At least 35% of the issue will be reserved for retail investors. LIC has an embedded value of Rs. 5,39,686 crore, said the prospectus.
The embedded value is a yardstick that determines the worth of a life insurance company. It is equal to the present value of all future profits from the existing business plus the net wealth of the shareholders.
Currently, private life insurance firms are trading at two to four times their embedded value. Based on the same yardstick, LIC's market capitalization might range between Rs. 10.8 lakh crore and Rs. 21.6 lakh crore. Mukesh Ambani's Reliance Industries Ltd, with a market capitalization of Rs. 16.1 lakh crore, is the most valuable company in India at present.
Even at a valuation of Rs. 10.8 lakh crore, a 5% sale would yield the government Rs. 54,000 crore. This will be nearly three times the Rs. 18,300 crore raised by One 97 Communications Ltd (Paytm's parent company) in its public offering last year.
According to the prospectus, LIC is India's largest life insurer, with a 64.1% market share in terms of premium, a 66.2% market share in terms of new business premium, a 74.6% market share in terms of the number of individual policies issued, and a 55% market share in terms of individual agents as of March 31, 2021.
As of September 30, 2021, LIC is India's largest asset manager, managing assets worth Rs. 39.6 lakh crore. As of March 31, 2021, LIC's assets under management (AUM) were 3.3 times more than the total AUM of all private life insurers in India.