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The LIC story — history, valuation & why its IPO, India’s biggest, matters for Modi govt

New Delhi: With a little over two months before the end of the current financial year, the central government’s disinvestment department has all hands on deck to ensure a smooth initial public offering (IPO) of India’s biggest insurer — the Life Insurance Corporation (LIC) of India.

In her budget speech last year, Finance Minister Nirmala Sitharaman had announced that the government will bring the LIC IPO, and that necessary amendment will be made to the laws to facilitate the process.

Last month, LIC had released advertisements inviting its policyholders to become shareholders, as it will reserve at least 10 per cent of the investments in its IPO for them. All they have to do is open a demat account in case they do not have one.

According to finance ministry officials, there is one meeting every day between the disinvestment department and the communication department of the LIC to check the status of the IPO. The government is making sure that it leaves no stone unturned in getting the desired subscription for the IPO, touted to be India’s biggest ever.

But how much does the public really know about LIC, to pour their money into it? ThePrint looks at the valuation of India’s largest insurer, policyholder’s investment, and why this public issue is important for the government.

History of LIC

LIC was formed in 1956 under the Life Insurance of India Act, which nationalised the insurance sector in India and merged as many as 245 insurance companies to form the life insurance behemoth. The government of India back then had contributed a capital of Rs 5 crore on incorporation of the company. It is 100 per cent government-owned.

One of the reasons for the nationalisation of the insurance business was the industrial policy resolution of 1956 that intended to give control of 17 crucial sectors of the economy, including life insurance, to the State.

LIC has the largest network of offices in India. It has eight zonal offices, 113 divisional offices, 74 customer zones, 2,048 branch offices and 1,546 satellite offices. Moreover, the insurer has 42,000 points at which policyholders can deposit premiums. It has roughly 13.5 lakh agents that sell its policies.

After LIC, which has around 25 crore policyholders, the second biggest player in the life insurance segment in India is HDFC Life Insurance, which has a network of 421 branches, has around six crore policyholders and is present in more than 980 towns.

The slogan of LIC is ‘Yogakshemam Vahamyaham‘ (your welfare is our responsibility), and is obtained from the 22nd verse of the Bhagavad Gita’s 9th chapter.

Also read: Modi govt is seeking Rs 15 lakh crore valuation for LIC as it sets up India’s biggest IPO

Size & valuation

While the size of the LIC is yet to be revealed by the government, private estimates have pegged the total value of the insurer at Rs 13-15 lakh crore. The government has appointed actuarial firm Milliman Advisors LLP India to assess the embedded value of LIC ahead of the IPO.

LIC releases its balance sheet only once a year, which means that no discernable numbers are available to derive its embedded value, which is defined by the current value of future profits added with the net value of assets.

The total value will include the value of the assets with the company, not just in terms of the value of policies LIC handles and the premium paid on it, but also other assets like real estate.

Till date, the biggest IPO in the Indian stock market has been that of Paytm’s parent firm One97 Communications, which raised close to Rs 18,000 crore, followed by Coal India, which raised around Rs 15,000 crore in 2010.

LIC has appointed 10 merchant bankers to manage the offer — Goldman Sachs (India) Securities, Citigroup Global Markets India, Nomura Financial Advisory and Securities India, SBI Capital Market, JM Financial, Axis Capital, BofA Securities, JP Morgan India, ICICI Securities, and Kotak Mahindra Capital Co Ltd.

Policyholders’ investment

Total investment of policyholders in LIC’s various plans grew by Rs 5.9 lakh crore to a total of Rs 37.72 lakh crore in the first half of the current financial year (2021-22), one of the highest assets under management by an insurer globally, owning two-thirds of India’s insurance market share. The biggest life insurer in the world is China’s Ping An Insurance with around $1.5 trillion of assets under management.

As of 30 September 2021, LIC had around 25 crore policyholders and has a net profit of Rs 1,437 crore in the first half of 2021-22. Its profit was Rs 6 crore in the same period last year.

The increase in profits is primarily led by its income from investments, which grew by Rs 15,726 crore to Rs 1.49 lakh crore in April-September period of 2021-22. Its income from profit on sale of investments grew to Rs 10,965 crore in April-September 2021.

Also read: How Modi govt is leaving no stone unturned to ensure its biggest IPO is a success

Why is LIC IPO important for govt?

In the 2021-22 Budget, the finance minister set an ambitious target of Rs 1.75 lakh crore from disinvestment and privatisation of public sector units (PSUs).

According to officials, the bulk of the disinvestment target for 2021-22 has to be met through the sale of the government’s stake in LIC. The government plans to sell anywhere between 5-10 per cent stake in LIC, which could fetch it around Rs 1 lakh crore.

To ensure the success of the IPO, the government is also considering allowing foreign institutional investors to buy up to 20 per cent of the IPO.

Former chief economic adviser Krishnamurthy Subramanian had said the central government can easily raise Rs 1 lakh crore from LIC by divesting 6-7 per cent stake in the company.

However, various reports also suggest that the proceeds from disinvestment in LIC may not come before the end of the current financial year ending 31 March 2022, as the company has not even filed the draft red herring prospectus with Securities and Exchange Board of India (SEBI) to seek its nod for the IPO.

So far, the government has raised around Rs 12,300 crore from the total disinvestment target. Last year, the government was only able to raise Rs 32,000 crore from disinvestment against a target of Rs 2.1 lakh crore as the country was severely hit by the Covid pandemic.

(Edited by Neha Mahajan)

Also read: Inside the all-out campaign to prepare for LIC’s mega IPO

Source: The Print

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