Life Insurance Corporation of India (LIC) IPO is coming soon. The company has submitted the draft prospectus for this to the stock market regulator SEBI. As per the prospectus, the 65-year-old company has a total equity base of 6.32 billion shares. Out of this, LIC will sell 5 percent i.e. 31.62 crore shares to the investors. Of these, 5 per cent of the shares will be set aside for the employees of the company. In addition to these, 10 percent of the shares can be held for eligible shareholders, which include policy takers of the company. Of the shares the company is selling, 35 per cent will be offered to small investors.
What will be the price of the company’s shares in the IPO, it will be decided further. It is also believed that employees and policy takers may be given some discount on the IPO price as compared to other investors. The draft prospectus also states that the embedded value of LIC is Rs 5,39,686 crore. This gives an idea of the future returns on a company’s current investments. The value of any life insurance company is determined in its multiple. At present, the companies which are in this segment in the stock market are getting two to four times the embedded value. Accordingly, the market value of LIC after listing could be Rs 10.8 to 21.6 lakh crore.
At present, Reliance Industries is the largest company in the country, with a total market value of less than Rs 16 lakh crore. LIC’s IPO will help the government meet its disinvestment target. In the financial year 2020, it had set a target of raising Rs 78 thousand crore through this route. If the company sells 5 percent stake at a value of Rs 10.8 lakh crore, then the government will get Rs 54 thousand crore from it. That is, it will be the biggest IPO of the country. The previous biggest IPO was that of Paytm. The company had raised Rs 18,300 crore from the market last year.
There are also some questions regarding LIC’s IPO. The first question is why the issue was not brought last year when the market was bullish. At that time it would have been easy for the government to sell the company’s shares at a good valuation. These days the market is under selling pressure. Foreign investors have withdrawn around Rs 80,000 crore in the last five months. Here, the pressure on the market has increased due to the increase in interest rates in the US. In such a situation, the second question is whether the IPO will get a good response from the investors in these circumstances? Actually, the challenge before the government to make this IPO a success is big.