Cabinet allows up to 20% FDI in IPO-bound LIC under automatic route

The Union Cabinet, chaired by Prime Minister Narendra Modi, on Saturday approved a proposal to allow foreign direct investment (FDI) up to 20 per cent in Life Insurance Corporation through the automatic route. The decision is expected to open doors for foreign investors who are keen to participate in the upcoming initial public offering (IPO) of LIC scheduled for next month, considered to be India’s largest public offering.

“Other minor enhancements in the existing FDI Policy have also been carried out in order to provide an updated, consistent and easily comprehensible FDI framework. The FDI policy reform will further enhance Ease of Doing Business in the country, leading to larger FDI inflows and thereby contributing to growth of investment, income and employment,” a government official said under condition of anonymity. 

The existing FDI policy did not prescribe any specific provision for foreign investment in LIC, which is a statutory corporation established under LIC Act, 1956. As per the FDI Policy, FDI in permitted sectors is allowed up to the limit indicated against each sector/activity subject to applicable regulations. 

While current FDI policy allows FDI in the insurance sector, LIC being a statutory corporation, is not covered under either “Insurance Company” or “Intermediaries or Insurance Intermediaries”. Further, no limit is prescribed for foreign investment in LIC under the LIC Act, 1956; the Insurance Act, 1938; the Insurance Regulatory and Development Authority Act, 1999 or regulations made under the respective Acts. 

“Since as per the present FDI Policy, the FDI ceiling for public sector banks is 20 per cent on government approval route, it has been decided to allow foreign investment up to 20 per cent for LIC and such other bodies corporate. Further, in order to expedite the capital raising process, such FDI has been kept on the automatic route, as is in the case of rest of the insurance sector,” the government official said.

Life Insurance Corporation on February 13 filed draft papers with capital market regulator Sebi for the sale of 5 per cent stake by the government for an estimated Rs 63,000 crore.

The initial public offering of over 316 million shares or 5 per cent government stake is likely to hit D-street in March. Employees and policyholders of the insurance behemoth would get a discount over the floor price.

According to the draft red herring prospectus (DRHP), LIC's embedded value, which is a measure of the consolidated shareholders value in an insurance company, has been pegged at about Rs 5.4 trillion as of September 30, 2021, by international actuarial firm Milliman Advisors.

Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around Rs 16 trillion.

The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC's market valuation would be comparable to top companies like RIL and TCS.

So far, the amount mobilised from IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

With inputs from PTI