India government paves the way for LIC’s listing, could be country’s largest IPO to date

Photo: Aniruddha Chowdhury/Mint

The government on Monday paved the way for the proposed initial public offering (IPO) of state-run Life Insurance Corp. of India (LIC) next fiscal in what would be the country’s largest public issue so far.

While announcing the budget for fiscal 2022, finance minister Nirmala Sitharaman proposed to amend the LIC Act and bring the rules for LIC under the Companies Act to ensure that the insurer does not face regulatory hurdles while launching its share sale.

LIC, in which the government holds a 95% stake, is the country’s largest insurer with total assets of more than 34 trillion. The insurer is currently in the midst of evaluating its total business through actuarial firms.

The finance minister said the Union government will hold at least 75% in LIC for the first five years post the IPO, and subsequently, at least 51% in the insurer at all times.

For this fiscal year, LIC recorded a new business premium of 1.3 trillion during April-December 2020, more than double of the total premium collected by all private life insurers together.

A public listing of LIC has been a protracted affair as it requires amending the LIC Act. The insurer needs to change its audit and accounting policies; the way it distributes surpluses; as well as amendments to Sections 24, 28 and 37 of the Act.

Section 24 deals with the way the corporation handles its corpus, Section 28 is about dividend distribution norms and Section 37 provides government guarantee on all its policies.

“LIC currently pays 5% of its surplus to the government, while the remaining 95% goes to its policyholders. That needs to be re-looked when the corporation gets listed and there is an external investor,” a person familiar with the matter said.

In comparison, private insurers pay 10% of their surplus to shareholders and the rest to policyholders.

Section 24 explains how “the corporation shall have its own fund and all receipts of the corporation shall be credited thereto and all payments of the corporation shall be made therefrom”.

LIC’s equity capital stands at 100 crore, which has to be expanded to sell even a 10% stake. Presenting the budget, the finance minister proposed to increase the authorized share capital of LIC to 25,000 crore, divided into 25 billion shares of 10 each.

The article was first published on livemint.com.

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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