New Delhi: The Union Cabinet on Saturday allowed Foreign Direct Investment (FDI) up to 20 percent through the automatic route in LIC, which is preparing to launch an IPO. This move of the government will ease the disinvestment of the country’s largest insurance company. A decision in this regard was taken in the cabinet meeting chaired by Prime Minister Narendra Modi.
The government has approved listing of LIC’s shares in the stock market through IPO. Foreign investors may be willing to participate in this mega IPO, however there is no special provision for foreign investment in LIC under the extant FDI policy, which is a statutory corporation constituted under the LIC Act, 1956.
Since, as per the FDI policy at present, the foreign investment limit in public sector banks under the government approval route is 20 per cent, it was decided to allow foreign investment up to 20 per cent in LIC and other such corporate bodies.
Such FDI has been placed under the automatic route to expedite the process of raising capital, a source said. The Cabinet had approved the initial public offering of LIC in July last year. LIC has applied to the market regulator SEBI for this issue.
Finance Minister Nirmala Sitharaman recently said that there is a lot of interest and discussion in the market regarding the initial public offering (IPO) of Life Insurance Corporation of India (LIC). He also indicated that the IPO will come only in the current financial year.
It is noteworthy that on February 13, the public sector insurance company has submitted a brochure with SEBI for the sale of five percent stake of the government. The sale of this stake is expected to raise Rs 63,000 crore. The IPO is in the form of an Outright Offer for Sale (OFS) by the Government of India.
LIC had 66 per cent market share in the new premium business with 283 crore policies and 13.5 lakh agents. However, the government did not disclose the market valuation of LIC in DRHP or the discounts given to policyholders or LIC employees in the public offering.
A portion of the IPO will be reserved for anchor investors. Also, up to 10 percent of LIC’s IPO issue will be reserved for policyholders. LIC’s IPO assumes significance for the government amidst estimates that the government’s disinvestment target for the current fiscal is likely to be short by Rs 78,000 crore. The government has so far raised around Rs 12,000 crore through privatization of Air India and sale of stake in other PSUs.(agency)