LIC IPO: The Modi government has approved Foreign Direct Investment (FDI) up to 20 percent through the automatic route for LIC’s IPO.
LIC IPO: Today the central government has taken a big decision regarding the biggest IPO in the history of the country. The Union Cabinet chaired by PM Modi has today approved Foreign Direct Investment (FDI) up to 20 percent through the automatic route for the IPO of the country’s largest life insurance company LIC. Sources informed the news agency PTI that this decision has been taken to facilitate the disinvestment of LIC. LIC has filed a draft Red Herring Prospectus (DRHP) with market regulator SEBI on February 13 for the biggest IPO ever in the country’s history. According to this, the government will sell five percent stake, which is estimated to be around Rs 63 thousand crore.
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Why had to be approved
As per the regulations of SEBI, the regulator of market regulator SEBI, both FPI (Foreign Portfolio Investment) and FDI are allowed in IPO. Foreign investors are willing to invest in LIC’s IPO, but under the current FDI policy, there is no specific provision for foreign investment in LIC. LIC has been formed under the LIC Act, 1956.
Under the current FDI policy, foreign investment can be up to 20 percent in public sector banks through the routes decided by the government, then the government decided to allow foreign investment up to 20 percent in LIC and similar corporate bodies. To make it easier to raise capital, this type of FD has been kept under the automatic route as in the insurance sector. The government has taken this decision because of the good response to the disinvestment of LIC.
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Preparing to bring IPO in March
LIC’s IPO may open in March next month. Under this, more than 31.6 crore shares can be offered. Some discount on the issue price may also be offered to the employees and the insured of the company. According to international actuarial firm Milliman Advisors, the embedded value of LIC is Rs 5.4 lakh crore as of 30 September 2021, according to the data available. The market cap of LIC has not been disclosed from the papers filed with SEBI, but according to industry standards, it could be around three times the embedded value i.e. Rs 16 lakh crore. Embedded value means the value of the consolidated shareholders in the insurance company.
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