India is preparing to file the necessary documents for the initial public offering (IPO) of state-owned insurer Life Insurance Corporation (LIC), the world’s largest in terms of home-market share at over 64% of total gross written premiums in 2020. The highly anticipated public issue, whose size has not yet been announced, is expected to be floated in March.
Actuarial firm Milliman Advisors LLP India has recently estimated LIC’s embedded value at five trillion rupees ($67 billion). Under the embedded value method, insurance companies’ present value of future profit is also included in their present net asset value.
The government’s plan will reserve up to 10% of the IPO for LIC policyholders. LIC recently appointed six independent directors to its board to fill all vacant positions and meet regulatory corporate governance requirements for listing.
Prime Minister Narendra Modi’s government, which reports indicate hopes to raise as much as $12 billion from the LIC public offering, needs the proceeds to help it bridge a deficit gap this fiscal year.
To facilitate the listing, the government has amended the Life Insurance Corporation Act to require the state to hold at least 75% in LIC for at least five years after the initial share sale and then gradually sell down to at least 51%. Currently, the government holds 100% of LIC.
LIC’s world-beating 64.1% home-market share of total gross written premiums through 2020 has yielded one of the world’s highest returns on equity at 82%, according to a Crisil report quoted in local media reports.
The Department of Investment and Public Asset Management has appointed 10 merchant bankers to manage the mega IPO. They include top global investment banks such as Goldman Sachs, Citigroup, and Nomura, as well as a host of Indian entities. The department is in charge of managing the government’s equity in state-owned companies.
During last week’s budget announcement for the fiscal year starting on April 1, the government set a disinvestment target of 650 billion rupees ($8.7 billion). For the current year, it revised down its target from 1.75 trillion rupees to 780 billion rupees, according to reports.
Official data shows that the government has so far raised about 120.3 billion rupees for disinvestment in the current fiscal year – including the sale of Air India to the local Tata Group – which is still significantly lower than the revised target.
India’s Revenue Secretary Tarun Bajaj told CNBC last week that more IPOs are in the pipeline, including stakes in Bharat Petroleum Corporation Limited, Shipping Corporation and the Container Corporation of India.