LIC IPO

LIC IPO: All you need to know

Finance Ministry on 19 June 2020 had invited bids From reputed professional consulting firms/ investment bankers/ merchant bankers/ financial institutions/ banks, independently (not in the consortium) for facilitating/assisting DIPAM (Department of Investment and Public Asset Management) in the preparatory processes leading to the IPO of LIC. The Finance Ministry said in the Request For Proposal (RFP) for engaging Pre-IPO transaction advisors.

The Central Government has planned to appoint two Pre-IPO transaction advisors, for assisting the DIPAM in the preparatory processes leading to the Initial Public Offer (IPO) of Life Insurance Corporation of India (LIC).

Eleven firms are in the race to play ‘transaction advisors’ (Pre-IPO advisers) to the government for the proposed initial public offering (IPO) of Life Insurance Corporation of India (LIC). These include Axis Capital, Citibank, CLSA, Deloitte, and SBI Capital.

All the 11 firms have shown a presentation through video conferencing to the government on 24 July following which the financial bids will be opened.

Names of some of the major investment banks were missing from the list of 11 candidates. Industry experts say that probably more firms are looking to act as merchant bankers to the IPO rather than Pre-IPO transaction advisors.

However, The government has clarified that the advisor will be eligible to be appointed as the merchant banker.

Citigroup, Edelweiss, SBI Capital Markets, Credit Suisse, and Deloitte are shortlisted from a long list of 11 entities. These banks were shortlisted on Monday after a round of technical bids and will now move on to financial bids, which will open on Tuesday morning. Post the financial bids, two of these firms will finally be mandated for the pre-IPO work.

Update: The government has finalized the appointment of SBI Capital Markets and Deloitte as pre-IPO transaction advisors.

Prerequisite to be a Transaction Advisor for LIC IPO:

The bidder would be required to have at least 3 years of experience in providing advisory services for IPO/strategic disinvestment/strategic sale/M&A activities/ private equity investment transactions.

Bidders should have advised, handled, and completed at least one transaction of IPO of a size of Rs 5,000 crore or more between April 1, 2017, to March 31, 2020, or should have managed a capital market transaction of Rs 15,000 crore or more during the period, the RFP said.

The tender documents showed that firms who have handled a life insurance IPO in India and/or abroad would be given a higher weightage in the bidding process.

Duties of Transaction Advisor for LIC IPO:

The advisor would ensure preparatory aspects of the proposed IPO and the advisor has to engage with the government to decide on the modalities and the timing of the minority stake sale in LIC through IPO and submit a detailed operational scheme; Structuring the transaction; organizing non-deal Roadshows, suggesting measures to fetch the optimum value; positioning of the minority sale, among others, the RFP said.

Once an advisor is appointed, the firm has to sign a non-disclosure agreement with LIC for the proposed transaction.

The task for the advisor would be to Scrutinize all the minute details of these investments while arriving at a valuation., Further, the real estate assets of LIC will also be part of the valuation process.

Listing of LIC IPO:

The government is looking at listing the country’s largest life insurer on domestic bourses in the January-March quarter of current fiscal 2020-21, Currently, the government holds a 100 percent stake in the life insurer.

To list the state-owned company, a final clearing will require from market regulator SEBI among other clearances.

Size of LIC IPO:

LIC has valued between Rs 9-10 lakh crore. Hence, even a 7-10% percent stake sale by the government could mean an IPO worth Rs 70,000-100,000 crore. Considering the size of the issue, it is likely that it could be the biggest-ever IPO seen in India.

So far this fiscal, the government has not been able to sell a stake in any central public sector enterprises (CPSE) as the coronavirus outbreak has impacted equity markets. The IPO of LIC would contribute a huge chunk to the government’s budgeted disinvestment kitty of Rs 2.10 lakh crore this financial year.

The announcement by Finance Minister for LIC IPO:

In the 2020-21 Budget, Finance Minister Nirmala Sitharaman had announced the government’s plan to sell a part of its holdings in Life Insurance Corporation of India (LIC) by way of Initial Public Offer (IPO).

This was one of the most unexpected announcements at Budget 2020. As of FY19, the state-owned company’s balance sheet was at Rs 30.5 lakh crore. Its total investments in debt and equity exceed Rs 25 lakh crore.

“Listing of companies on stock exchanges disciplines the company and provides access to financial markets and unlocks its value. It also gives an opportunity for retail investors to participate in the wealth so created,” she had said.

LIC IPO Financial Analysis:

Total Income

LIC’s Total income for FY 2019 increased by 7.10 % to Rs 5607 Billion, as against Rs 5236 Billion in FY 2018. Below is the graph and detailed Income Result for FY 2019 along with the comparison with FY 2018. Below doesn’t Include Interest income which was Rs 22,071 Crore against the Interest expense of Rs 16,166 Crore.

Policy payments

In FY 2019 LIC made a policy payment of Rs 2509 Billion, in FY 2018 this Figure was Rs 1981 Billion. A detailed Break up is given below:

Investments

Total Investments as on 31st Mar 2019 were Rs 29,843 Billion. During FY 2019, LIC made a total investment of Rs 20,596 Crore, as below:

Update dated 10th Aug 2020: Some media house speculated that LIC is picking up a stake in Vodafone Idea Limited however Vodafone Idea on 11th Aug 2020 described the talks about life insurance major LIC picking up a stake as “baseless speculation”. Market players and sources within the insurance giant, however, said there were initial talks between the two, and that the government-run life insurer may look at the troubled telecom service provider to buy a large minority stake.

LIC’s Revenue account on 30th June 2020 Policyholders’ Account (Technical Account)

Figures in (‘₹` 000)

LIC’s Revenue account on 30th June 2020 Policyholders’ Account (Non-Technical Account)

LIC’s Premium and Commission schedule as of 30th June 2020

LIC’s Balance Sheet as of 30th June 2020

LIC’s Claims data as of 30th June 2020

Key Ratios for LIC IPO

  1. LIC’s Investment Yield for FY 2019 was 7.59%, in FY 2018 7.71%
  2. Commission Ratio of LIC (Gross commission paid to Gross Premium) in FY 2019 was 5.73%, in FY 2018 the same was 5.74%.
  3. The net Retention Ratio of LIC for FY 2019 was 99.91%.
  4. The total Asset of LIC as of 31st Mar 2019 was Rs 31,118.47 Billion.
  5. LIC Housing Finance Limited’s Net worth as of 31.03.2019 was Rs 16,259 Crore.
  6. There are 24 life insurers in India, with LIC commanding a market share of 69% in FY20.

FAQs related to LIC IPO:

Is LIC IPO good or bad?

Whether you are a new investor or an existing investor in the share market, you can go for rather you should apply for this. LIC has valued between Rs 9-10 lakh crore. Hence, even a 7-10% percent stake sale by the government could mean an IPO worth Rs 70,000-100,000 crore. Considering the size of the issue, it is likely that it could be the biggest-ever IPO seen in India. The LIC IPO 2020 offers a great opportunity to retail investors and employees to invest in the company for the long term as well as making quick listing day gains. It is also speculated the LIC Policy Holders may get a reserved quota in this IPO.

Is LIC going public or is LIC becoming private?

In the 2020-21 Budget, Finance Minister Nirmala Sitharaman had announced the government’s plan to sell a part of its holdings in Life Insurance Corporation of India (LIC) by way of Initial Public Offer (IPO).
This was one of the most unexpected announcements at Budget 2020. As of FY19, the state-owned company’s balance sheet was at Rs 30.5 lakh crore. Its total investments in debt and equity exceed Rs 25 lakh crore.

What is an IPO in LIC policy?

In the 2020-21 Budget, Finance Minister Nirmala Sitharaman had announced the government’s plan to sell a part of its holdings in Life Insurance Corporation of India (LIC) by way of Initial Public Offer (IPO).

How can I apply for LIC IPO?

You can apply for the IPO through ASBA (Application Supported by Blocked Amount), almost all the banks are providing this facility.

LIC IPO date 2020? When will LIC IPO come?

The LIC IPO is expected in the last quarter of FY 2021-2022.

LIC IPO price band?

Face value of LIC’s shares would be Rs 10, the band price could be declared soon, as per the available data sources the price band of LIC IPO is likely to be fixed at Rs 400-600 per share.

LIC IPO expected share price?

The price is yet to be decided, however the price of a lot would be near to Rs 15,000.

LIC IPO lot size?

LIC has valued between Rs 9-10 lakh crore. Hence, even an 8-10% percent stake sale by the government could mean an IPO worth Rs 70,000-100,000 crore.

On Which Stock Exchange LIC IPO will be listed?

LIC IPO will be listed on the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange).

What will be the Book Building Proportion?

QIB (50%), NII (15%), Retail (35%).

What will be the advantage to LIC Policyholders from this LIC IPO?

It has been proposed to have a reservation on a competitive basis, to an extent of up to 10% of the issue size, in favor of life insurance policyholders of LIC.

For more details about LIC, Click here

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One comment

  1. LIC Amendment Act and Amendment to IDBI Bank (Transfer of Undertaking and Repeal) Act has been made part of the Finance Bill. There will be no separate bill. LIC IPO would come post-October, Pandey said.

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