LIC board approves IPO issue size to be cut to 3.5% from 5%

The government will sell 3.5% equity for Rs 21,000 crore valuing India's largest insurer at Rs 6 trillion.

Life Insurance Corporation of India’s board has approved reducing the issue size of the state-owned firm's initial public offering (IPO). The government will dilute 3.5 per cent of its shares in LIC for Rs 21,000 crore, subject to regulatory approval, said an official.

A proposal to reduce the size of LIC’s IPO to 3.5 per cent from 5 per cent proposed in its draft red herring prospectus (DRHP) was tabled and approved at a board meeting on Saturday,, the official said.

The government will now sell its 3.5 per cent equity in LIC for Rs 21,000 crore valuing India’s largest insurer at Rs 6 trillion. The valuation has been finalised after feedback from investors that led to price discovery of insurer's shares. At Rs 6 trillion, the valuation of LIC has been fixed at 1.1 times its embedded value of Rs 5.39 trillion.

As the Securities and Exchange Board of India (SEBI) mandates companies with valuation over Rs 1 trillion to dilute 5 per cent equity and Rs 5,000 worth shares, the move would require the market regulator’s approval. In its DRHP, the centre had stated it would sell its 5 per cent shares or 316 million shares in the IPO. 

The IPO would be launched in the market in the first week of May. The government would file the red herring prospectus (RHP) for the issue this week. The RHP would have details such as the revised issue size, launch dates, issue price and the discount that the government intends to offer its policyholders and employees as well as retail investors.

The government decided to go ahead with the IPO, as market volatility alongside the Russia-Ukraine crisis is expected to continue. The view was postponing the IPO would not make the situation in the near future better as issues such as high inflation and oil prices are unlikely to vanish at least in the four to five-month period.

LIC has not responded to questions Business Standard emailed it. The story will be updated when it does.