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

Union Cabinet on Saturday approved a policy amendment allowing foreign direct investment of up to 20% in Life Insurance Corp of India (LIC), a move aimed at easing the listing of the state-run insurer, sources told PTI.

The amendment would allow foreign direct investors to buy up to 20% of LIC's shares through an automatic route.

The Department for Promotion of Industry and Internal Trade (DPIIT) had mooted the proposal after taking views from the finance ministry.

According to the current FDI policy, 74% foreign investment is permitted under the automatic route in the insurance sector. However, these rules do not apply to the Life Insurance Corporation of India (LIC), which is administered through a separate LIC Act.

As per Sebi rules, both FPI and FDI are permitted under public offer. However, since the LIC Act has no provision for foreign investments, there is a need to align the proposed LIC IPO with Sebi norms regarding foreign investor participation.

The Cabinet had in July last year approved the initial public offering (IPO) of LIC and the stake sale is being planned for the current March quarter.

Setting the stage for the country's biggest-ever public offering, 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% 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.