The launch of LIC IPO will be the biggest public offering in the history of India. The IPO is a part of the Indian government’s divestment plan announced during the 2021 union budget that targets to raise Rs 1.75 lakh crore to revive the Indian economy. With the tentative launch date all set for the fourth quarter of 2021, here are some things that you should be aware of before you invest. If you are looking to invest in LIC IPO, we’ve highlighted four points that you should keep in mind.
#1 Government has Selected Two Advisors
The centre has picked Edelweiss Financial and Deloitte as pre-IPO transaction advisors for the listing of LIC. These firms have been shortlisted based on their past experience in the insurance IPOs and their investment reach. The advisors will be involved in the preparatory work ahead of the IPO launch. Additionally, the two companies will be advising the government on the IPO minority sale timing and capital structure of the institution going forward.
#2 Why is the IPO a Big Deal?
LIC has an AUM (Asset Under Management) of around ₹31 Lakh crore. With 24 life insurance companies in India, LIC commands a market share of a whopping 70%. The company collected first-year premiums of ₹1.78 lakh crore in FY-2020, which was higher than the previous year. LIC is the largest institutional investor in the country, with a total investment of nearly ₹120 Lakh crore.
Finally, the total net premium collected by LIC is over three times more than the preceding three largest insurers, namely: SBI Life, ICICI Pru, and HDFC Life. The government’s decision to monetise and allocate this resource to fresh infrastructure development and fill the budgetary deficit is truly a historic one.
#3 LIC Valuation
The valuation of LIC will be a challenging one, given the absence of any value-related data and the adequacy of provisioning. However, a back-of-the-envelope calculation based on its current AUM and the new business premium would suggest a valuation of around ₹7-8 Lakh crore. This means that even if the government were to sell 10% of their stake, it could raise about ₹80,000 crores by the sale of the IPO.
#4 Number of IPO Investors
LIC IPO can add ₹20 crore investors. If the government creates some incentive by providing reservations for unitholders, this can potentially increase interest rates offered to investors. Up to 10% of the LIC IPO issue size would be reserved for policyholders, while the government will remain the majority shareholder and will continue to retain management control thereby safeguarding policyholders’ investment.
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