The decision of the government headed by PM Modi to disinvest part of its stake in the country’s largest insurer, the Life Insurance Corporation, has been nothing short of bold. The Government of India owns the mammoth insurance company in totality, but why has it sought to disinvest a part of it, about 5%-6% in its initial decision? Typically, when owners of any company wish to disinvest in the company, by releasing an IPO, or initial public offering, they do so because they need more funding to grow the company further. The Government of India was due to release an LIC IPO in March 2022, via merchant bankers, for the reason of raising capital.
An initial public offering, an IPO, is released by owners of a company to raise funds for the enhancement of the said company. In an initial public offering, shares of the company are offered to retail investors and institutional investors for purchase, and these entities become shareholders in the company. This is known as a company going ‘public’. In the case of LIC, why is the Indian government disinvesting a stake in it? The reason is to raise capital for government spending on infrastructure projects, reforms, etc.
The Life Insurance Corporation holds huge investments in several listed companies. As a company goes, it is one of the largest institutional investors in India. The disinvestment of LIC shares, in part, by the Government of India, is primarily being done so that the Indian government can meet its prescribed target of disinvestment for FY22. Analysts predict that the IPO will only help the Indian government to meet its financial targets, as the Life Insurance Corporation is likely to be oversubscribed. Needless to say, the IPO is being eagerly awaited by investors, both institutional and retail, as investment in such a company is only predicted to be fruitful all-round. LIC is the largest insurer in India, with over 20 years of firm footing in the insurance sector. In the midst of numerous private insurers emerging, LIC has managed to keep itself afloat, and with a massive amount of success to boot.
The LIC holds 71% of the market share in the segment of insurance marketplace in India. Analysts estimate that the IPO released by LIC will pull in close to Rs. 1 lakh crore. With the pandemic almost crushing economies around the world, the government’s disinvestment plans also include Pawan Hans, BEML and SCI. While investing in any IPO, it is essential to know details of the background of the IPO release, and this may shed light on information that helps investors make a choice of investment. In the case of the LIC IPO, investors may wish to know about the huge profit that the Indian government stands to make while disinvesting. This, in turn, sheds some light on the projected valuation of the company to be invested in. Clearly, the Life Insurance Corporation has all the trappings of a good investment opportunity for potential shareholders.
The much-sought after LIC IPO was due out in March 2022. However, it was delayed due to the economic fallout of the Ukraine crisis. It is now due out on 2 May for employees and LIC policyholders, and due for release on 4 May for the public. The offer will close on 9 May. In other important news regarding this much delayed IPO, the offering will be in the price band of Rs. 902-949. Furthermore, the government is due to give a Rs. 45 discount to employees and retail investors, and a Rs. 60 discount to LIC policyholders. In more news, the LIC board decided to dilute only 3.5% of its holdings, instead of the initially planned 5%. This stake amounts to Rs. 21,000 crores.
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