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List. Invest. Collect: LIC moneyback plan

IPO may help raise vital resources for the treasury and improve transparency at the country’s largest insurer.

, ET Bureau|
Last Updated: Feb 02, 2020, 10.52 AM IST
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Coal India was the biggest IPO in India when it raised Rs 15,200 crore in 2010.
In what could be the mother of all initial public offerings in India, the government plans to list state-run Life Insurance Corporation of India in the coming fiscal year. The move is expected to raise vital resources for the treasury and improve transparency of the insurer that serves a quarter of the population.

When the listing happens, it would also be a symbolic move to show that the state is easing its hold on the institution which in the past has been used as a ward of the government to meet its funding requirements.

“Listing of companies on stock exchanges disciplines a company and provides access to financial markets and unlocks its value,” finance minister Nirmala Sitharaman said in her budget speech. “It also gives an opportunity for retail investors to participate in the wealth so created.”

If LIC begins trade on stock exchanges it would be one of India’s biggest companies in terms of market capitalisation along with Reliance Industries, TCS and HDFC Bank. LIC with assets under management of Rs 31 lakh crore in 2019 is likely to get a valuation of about Rs 8-10 lakh crore.

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“LIC being an over 60-year-old mature company, assessing it just on the embedded value like other private sector players that have been around for about 20 or less years may not be the only criterion,” said Kajal Gandhi, analyst, ICICI Direct, an online brokerage. “Being a governmentowned entity it is likely to see a valuation gap compared to private players. At even 25-30% of its AUM, the company can be valued at around Rs 8-10 lakh crore.”

A10% sale could fetch the government upwards of Rs 80,000 crore which would help New Delhi meet a significant portion of its ambitious divestment target of Rs 2.1 lakh crore for FY21. It is almost twice the current fiscal’s target and more than the total receipts through divestments in the past five years.

Coal India was the biggest IPO in India when it raised Rs 15,200 crore in 2010.

“The decision to divest a heavyweight such as LIC is bold and will help to augment the financing kitty significantly,” said B Prasanna, group head, global markets, sales, trading & research, ICICI Bank.

LIC is among the world’s top insurers such as China Life, Ping An and AIG. The life insurer is also the largest institutional investor in the country with substantial stakes in ITC, Axis Bank, State Bank of India, and Reliance Industries, among others.

It is the largest subscriber of state and central government securities as well. The total investment in central, state and other government-guaranteed marketable securities, loans, debentures and equity investments in infrastructure and social sector comes to nearly Rs 20 lakh crore.

While it may be ambitious to list LIC, there are questions about whether the institution is or could be made ready for listing, complying with the standards that international investors demand.

LIC may need to be capitalised before the IPO to meet with the insurance regulator’s solvency ratio requirements. Its available solvency margin is at Rs 1.44 lakh crore and its required solvency margin is about Rs 93,200 crore to meet the mandatory solvency ratio
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