The filing of a draft red herring prospectus (DRHP) by Life Insurance Corporation of India (LIC) has created a “positive buzz in the air” and the public issue will be a very positive development in the history of the country’s largest insurer, Union Finance Minister Nirmala Sitharaman said on Monday.
Addressing a media briefing after the Reserve Bank of India’s (RBI) board meeting, Sitharaman said, “I can see after the announcement, the reception, there is a buzz in the air.”
According to the DRHP (Draft Red Herring Prospectus), the public issue is completely an offer for sale where the government will sell 5% stake or 31.6 crore shares in the insurance behemoth. No fresh stock will be issued for the IPO. The Government holds 100% stake or over 632.49 crore shares in LIC. The face value of shares is ₹10 apiece.
The government, however, did not disclose in the DRHP the market valuation of LIC or the discount which will be given to policyholders or LIC employees in the public offering.
Despite a steady decline in market share, LIC continues to lead the pack with 64% the life insurance market in the country of 1.4 billion people.
According to the draft red herring prospectus, LIC’s embedded value, which is a measures of the consolidated shareholders value in an insurance company, has been pegged at about ₹5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.
With staff of more than 100,000 people, its vast assets under management of ₹36.7 trillion ($491 billion) equate to nearly 16% of India’s gross domestic product.
LIC in turn is one of India’s biggest institutional investors, with significant stakes in Indian blue-chip stocks like Reliance, TCS, Infosys and ITC.
According to the draft papers, LIC reported a profit of ₹1,437 crore for the first half of the financial year 2021-22 as compared with ₹6.14 crore in the year-ago period. Its new business premium growth rate stood at 554.1% in the same period as against 394.76% during the same period last year.
Investors and analysts are gearing up to the LIC IPO, which may hit the markets in March, and once listed the market cap could be among the top listed companies like Reliance Industries Ltd (RIL) and Tata Consultancy Services (TCS).
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