Two weeks after the government proposed to amend the LIC Act in the union budget, on Wednesday, following a board meeting the Securities and Exchange Board of India or Sebi altered the country’s public issue norms in a way that will make it easier for India’s largest insurer Life Insurance Corp. of India (LIC) to float its mega initial public offering (IPO).
The government is betting on diluting its stake in state-run LIC via an IPO in the coming fiscal in an attempt to garner enough non-tax revenues to narrow the country’s fiscal deficit. LIC’s public issue is expected to be the country’s largest-ever and is pegged to be at least ₹1 trillion for just a 10% share sale to the public, said three people directly aware of the insurer’s IPO plans.
Sebi, on Wednesday, eased the minimum public offer (MPO) norms and said that for any company with post issue market capital of above Rs.1 trillion, the IPO size is required to be Rs10,000 crore plus 5% of the incremental market capital amount beyond Rs.1 trillion.
At present, companies with post issue market capital of ₹4,000 crore or more are required to offer at least 10% of the capital to the public in the IPO. Further, such issuers are also required to achieve a minimum public shareholding (MPS) of at least 25% within three years from the date of listing.
The market regulator further relaxed the norms and said that companies with a size of over Rs1 trillion will now be required to achieve at least 10% public shareholding in two years and at least 25% within five years from the date of listing.
This amendment too will particularly help LIC since its size is so large that the market may find it tough to absorb equity papers worth even 5% of LIC in the further public issues that the insurer will need to launch to comply with Sebi’s public shareholding norms post its IPO.
LIC, which is preparing for its IPO and is currently undergoing an evaluation process by actuarial firms, will be the biggest beneficiary of this relaxation by Sebi. On 1 February, the finance minister, while announcing the budget for fiscal 2022, proposed to amend the LIC Act and bring the rules for LIC under the Companies Act to ensure that the insurer does not face regulatory hurdles while launching its IPO.
LIC, in which the government holds 95%, is the largest insurer in the country with total assets worth over Rs. 34 trillion. The finance minister said the Central Government will hold at least 75% in LIC for the first five years post the IPO, and subsequently hold at least 51% in the insurer at all times after five years of the proposed IPO.
For the fiscal year 2021, LIC recorded a new business premium of Rs. 1.3 trillion in the April-December period, which is more than double of the total premium collected by all private life insurers together. A public listing of LIC has been a protracted affair as it required amending the LIC Act. The insurer needed to change its audit and accounting policies; the way it distributes surpluses; and amendments to Sections 24, 28 and 37 of the Act.