04 Feb 2022

LIC to File Draft Red Herring Prospectus (DRHP) Next Week

With the Finance Minister confirming in her Union Budget speech that the LIC IPO would happen this year, the government is moving ahead with the next steps with a great sense of urgency. To begin with, the government is expected to file the draft red herring prospectus for the proposed IPO of LIC by next week.

As of now the final dates are not yet out, but the government plans to list the IPO of LIC before the end of March, so a rational assumption would be that the LIC IPO should happen by the second week of March 2022, to give enough time for the completion of other formalities pertaining to such a massive IPO; the largest in history.

The Secretary of DIPAM, Tuhin Kant Pandey, has confirmed that the government is just awaiting the final approval from IRDAI and post that approval, the government will go ahead and file the DRHP for the IPO. While the size of the issue and the pricing is not yet known, one can make some broad presumptions on the size of the LIC IPO.

The disinvestment target for FY22 has been revised down from Rs.175,000 crore to just Rs.78,000 crore. With Rs.13,000 crore of disinvestment target already achieved during the year the government would look to raise the balance Rs.65,000 crore from the LIC IPO. Since the IPO valuation for LIC is pegged approximately at around Rs.14 trillion, the IPO would need to sell just about 5% of equity in this particular case.

While most of the legislative changes needed for the IPO are done, there are some minor changes still required to be done. Firstly, Milliman Advisors has already submitted the actuarial valuation of LIC to the government and the same is awaiting IRDAI approval. The second approval that is required is a special approval to permit FPI and FDI investments in LIC, since it is legally a corporation under the statute of Parliament.

Government had already stated that 10% of the IPO of LIC would be reserved for the LIC policyholders. Currently, SBI Caps and Deloitte as the pre-IPO transaction advisors are involved in completing the formalities. It may be recollected that the government had given the IPO mandate to 10 merchant bankers in all which included 5 domestic merchant banker 5 international merchant bankers.

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