According to a government source, the Indian government plans to allow foreign institutional investors to buy up to a 20 percent stake in state-owned Life Insurance Corporation (LIC). LIC is currently preparing itself for its initial public offering (IPO), considered to be India’s biggest-ever IPO, with the government aiming to raise up to ₹900 billion from its stake sales.
As per SEBI (Securities and Exchange Board of India) rules, foreign portfolio investors (FPI) are permitted to buy shares of up to 74 percent of private insurance companies in a public offer, and up to 20 percent of state-owned banks. However, since the LIC Act has no provision for foreign investments, there is a need to align the proposed LIC IPO with SEBI norms. This latest development is expected to ease the fund-raising process for the IPO.
LIC, the country’s largest public insurer’s public offering will be offered in two cycles to investors due to concerns over the Indian stock market’s ability to absorb an offering of such a size. The government has selected ten merchant banks out of the sixteen that had bid to kick-start the process to manage the mega IPO. These include Goldman Sachs (India) Securities, Citigroup Global Markets India, and Nomura Financial Advisory and Securities India. The merchant banks are expected to earn a fee of around ₹100 million, higher than the token fee charged on some IPOs of state-owned firms in the past, but significantly lower than the fees for private listings.
The selling of a minority stake in the state-owned life insurer is a part of the government’s divestment target of ₹1.75 lakh crores for the current fiscal year. LIC’s assets exceeded the ₹38 lakh crores mark in the previous financial year. During 2020-21, the life insurer collected ₹1.8 lakh crores in new business premium, implying a growth of 3.5 percent. The government has raised ₹8,368 crores so far, through minority stake sales in public sector undertakings and the sale of the Specified Undertaking of the Unit Trust of India (SUUTI) stake in Axis Bank.
The government has recently floated a request for proposal (RFP) again, to appoint a legal advisor to assist the LIC IPO, as the first contract failed to receive an adequate response from law firms. The revised RFP by the Department of Investment and Public Asset Management (DIPAM) has specified that the time limit for the validity of the financial bids shall be three years, implying that the law firm will assist LIC and the government for three years from the time of placing the bid. The previous bid document had stated that bidders cannot prescribe any time limit for the validity of the financial bid, keeping the timeline of their work open-ended. Law firms should submit their bids by September 16.