Cabinet allows up to 20% FDI in IPO-bound LIC: Sources

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The government on Saturday permitted up to 20 per cent foreign direct investment (FDI) under automatic route in IPO-bound LIC with an aim to facilitate disinvestment of the country's largest insurer, sources said.

The decision in this regard was taken by the Union Cabinet, chaired by Prime Minister Narendra Modi. The government has approved listing of shares of LIC on the stock market through an IPO by part-sale of its stake in the insurer and raising fresh equity capital.

Foreign investors may be desirous of participating in the mega IPO. However, the existing FDI policy did not prescribe any specific provision for foreign investment in LIC, which is a statutory corporation established under the LIC Act, 1956.

Since as per the present FDI policy, the foreign inflows ceiling for public sector banks is 20 per cent under government approval route, it has been decided to allow foreign investment of up to 20 per cent for LIC and such other corporate bodies.

Further, in order to expedite the capital raising process, such FDI has been kept under the automatic route, as in the case of the rest of the insurance sector, one of the sources said.

Increased FDI inflows will supplement domestic capital, technology transfer, skill development for accelerated economic growth and development across sectors.

Sources said other minor enhancements in the existing FDI policy have also been carried out in order to provide an updated, consistent and easily comprehensible FDI framework.

The FDI policy currently lists only 'Insurance Company' and 'Intermediaries or Insurance Intermediaries' under the insurance sector.

LIC being a statutory corporation, is not covered under either insurance company or intermediaries or insurance intermediaries and no limit was prescribed for foreign investment in LIC under the LIC Act, 1956; the Insurance Act, 1938; the Insurance Regulatory and Development Authority Act, 1999 or regulations made under the respective laws.

Further, with an intent to improve the overall FDI policy, certain changes and alignments under various provisions of the policy have been carried out.

"The reform in the FDI policy will have several benefits. It would facilitate foreign investment in LIC and such other corporate bodies, for which the government may have a requirement for disinvestment purposes.

"The reform will facilitate ease of doing business and lead to greater FDI inflows, and at the same time, ensure alignment with the overall intent/objective of FDI policy," a source said.

Setting the stage for the country's biggest-ever public offering, Life Insurance Corporation on February 13 filed draft papers with capital market regulator Sebi for the sale of 5 per cent stake by the government for an estimated Rs 63,000 crore.

The initial public offering (IPO) of over 31.6 crore shares or 5 per cent government stake is likely to hit D-street in March. Employees and policyholders of the insurance behemoth would get a discount over the floor price.

According to the draft red herring prospectus (DRHP), LIC's embedded value, which is a measure of the consolidated shareholders value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.

Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around Rs 16 lakh crore.

The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC's market valuation would be comparable to top companies like RIL and TCS.

So far, the amount mobilised from IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore. 

Also Read | LIC IPO: Govt to sell 31 crore equity shares in one of India's largest sales