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Information about Government set on LIC IPO in Q4 despite market woes available for investment. Back
Government set on LIC IPO in Q4 despite market woes
07-Dec-21   09:05 Hrs IST

The government is moving ahead with its plans to list Life Insurance Corporation (LIC) during the current fiscal despite uncertainties in the wake of the weak performance of mega initial public offers (IPOs) like Paytm, and Star Health in the insurance sector.

The downtrend in stock markets following the detection of the new Covid variant has also not deterred the government as the macro benefits of the IPO are seen to outweigh the challenges.

According to sources, the insurer has done the groundwork in respect of the draft red herring prospectus and its half-yearly results for the current financial year.

The consulting actuary, Milliman Advisors, is expected to officially submit its report later this month. Bankers have already held preliminary meetings with potential investors for a fourth-quarter IPO.

Sources said that the success of the IPO would depend on getting the pricing right. One indication that the government is going ahead with the IPO is that the department of investment and public asset management (Dipam) this week appointed a PR firm for the IPO process.

For investors, the issues of interest are the embedded value multiple that the government will be seeking. They also want to know whether there is a road map for increasing the surplus distribution to shareholders. Although the law was amended to allow LIC to distribute 10% of its surplus to shareholders, the government, through a letter issued in November 2013, allowed the corporation to continue with a 95:5 distribution.

Industry officials said that even if LIC continues with a surplus distribution ratio of 95:5, the 5% dividend is enough to provide a substantial yield. For instance, in FY21, the corporation had a valuation surplus of Rs 57,780 crore on its life fund of Rs 34.4 lakh crore. Of this, the dividend distributed at the rate of 5% works out to Rs 2,889 crore. SBI Life Insurance, which is the closest proxy for a public sector life company, has a dividend yield of 0.2% and a market capitalisation of Rs 1,14,845 crore.

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