IT Correspondent
New Delhi, Sept 9:
The Union government is likely to sell up to 25 per cent stake in Life Insurance Corporation of India (LIC) in one or more tranches and under the deal the government is expected to fetch sizable money.
The Department of Financial Services under the Union finance ministry has floated a draft cabinet note for stake sale in LIC to the ministries concerned, SEBI, IRDA and NITI and the dilution of government shareholding from 100 percent to 75 percent in LIC in one or more tranches has been proposed
In initial phase, the government will press ahead with a 10 percent stake sale and the remaining stake sale will be done in more than one tranches. That is because the guidelines of capital markets regulator SEBI require that within three years of listing, the minimum public shareholding should be at least 25 percent.
During the stake sale, the government is likely to incentivise the participation of retail investors by providing up to 10 percent discount. This discount may be offered to the employees of LIC, too. Up to 5 per cent shares, may be reserved for retail investors and employees. However, the final decision on reservation of shares and discount will be taken by Alternate Mechanism (a group of Ministers) that will be formed after cabinet approval.
The IPO of LIC is expected to contribute a huge chunk to the government’s budgeted disinvestment kitty of Rs 2.10 lakh crore this fiscal and the retail investors are also expected to get bonus and IPO-discount.
It may be recalled that in the 2020-21 budget, Union Finance Minister Nirmala Sitharaman had announced the government’s plan to sell a part of its stake in LIC by way of IPO.
The government is expected to hire Deloitte Touche Tohmatsu India and SBI Capital Markets for the LIC’s IPO. The advisers will help evaluate the capital structure of LIC and will also help the country’s biggest insurer in reworking its financial statement.
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. The government is looking at listing the insurer on domestic bourses in the January-March quarter of the current fiscal.
The initial public offering of Life Insurance Corporation of India likely to be bigger as the government plans to incentivise the participation of retail investors by offering discounts and issuing bonus shares. For this the LIC Act will be amended.
The same draft Cabinet proposal will also propose amendments in LIC Act 1956 before moving ahead with the stake sale. LIC is not a company under the Companies Act, but a statutory body incorporated under LIC Act 1956. A total six amendments have been proposed in the Act. According to the current provision of the Act, LIC is unable to provide authorised capital, issued capital etc. The management and board also will have to be restructured.
