LIC IPO: Govt. hires 10 bankers, and other details we know so far

by 5paisa Research Team Last Updated: Dec 12, 2022 - 07:03 am 54.2k Views
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The Narendra Modi government has ambitious plans of raising Rs 1.75 trillion via disinvestment during the current financial year, and is banking on generating a lion’s share of this money from the Life Insurance Corp (LIC) of India.

The government hopes that the initial public offering (IPO) of the insurance behemoth will help it mop up more than half the amount it has targeted to raise from disinvestment this year. If the plans do come to pass, LIC will become not only a money spinner for the cash-strapped government but will also be one of India’s most valuable companies with a market capitalization in excess of Rs 10 trillion.

Here’s a lowdown on the mega public offering and other key pieces of information we know so far.

What’s the size of the LIC IPO?

The government could be aiming to raise anywhere between Rs. 900 billion and Rs. 1 trillion from the IPO. This will make it India’s biggest IPO by a wide margin. 

To be sure, the government will retain 90% of the insurer as only 10% of its shares are likely to be up for grabs. In fact, some reports say the government may even split the IPO into two parts with a gap of a few months since it believes the market may not have the appetite for such a large offering. 

At what stage is the IPO preparation?

The government has just hired 10 merchant banks to arrange the share sale. These are Kotak Mahindra Capital Company, Goldman Sachs India Securities, JP Morgan India, ICICI Securities, JM Financial, Citigroup Global Markets India, Nomura Financial Advisory and Securities (India), Axis Capital, DSP Merrill Lynch, and SBI Capital Markets.

Hyderabad-based KFintech has been appointed as the registrar and share transfer agent. Mumbai-based Concept Communications has been selected as the advertising agency.

Will foreign investors be allowed to bid for the LIC IPO?

According to reports, the government is looking to allow foreign institutional investors to buy up to 20% in the LIC IPO. This help the mega IPO to sail through as FIIs are a major driver of India’s stock markets.

Is it all smooth sailing for the LIC IPO?

While the government would certainly like to think so, the insurer’s employee unions might be having different ideas.

The All India LIC Employees’ Federation has said that the proposed share sale could result in job losses and adversely affect the company’s infrastructure spending plans. 

Rajesh Kumar, the general secretary of the employee’s union, said in an interview to Bloomberg TV that the listing could take away from LIC’s focus on investing in the country’s rural and economically backward people, who need insurance the most.  Kumar said that a public listing could force the company, which has been investing into capital intensive infrastructure projects like roads, railways and power for the last 60 years, to look to pump its money into projects that would help it generate and maximise profits. Kumar said his union had written to Prime Minister Modi, protesting the stake sale. 

How many employees does this union represent?

Kumar’s union represents only about 4,000 of LIC’s 114,000 employees. But a note of protest by one union could set off a chain reaction, and other employee interest groups could join in. 

Can this opposition scuttle the LIC IPO plans?

It is unlikely that the government will go back on its plan to list LIC, but employees of several other government owned companies and banks have in the past protested vociferously when those entities have either been listed or been completely divested. 

Apart from several banking unions, those representing employees of Coal India Ltd protested vehemently in 2010 when the company was getting listed. In fact, most employees did not participate in the IPO, a part of which was reserved for them, because of pressure from the unions, thus missing out on what was then a bumper IPO.

Read More: 

What is an IPO?

Upcoming IPOs in 2021 

How to apply for an IPO? 

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