It plans to file the DRHP this month and people familiar with the preparations said the latest financial numbers will have to be included in the initial prospectus to allow foreign investors, especially those that are from the US, to take part in the share sale.
“Things are on the right track and we should be able to file the DRHP before the end of the month, which will give us enough time to complete the issue before the end of the fiscal,” said a person involved in the deliberations.
The government, the sole owner of LIC, expects to garner more than ₹1 lakh crore from the share sale in India’s largest insurance company, more than five times the ₹18,300 crore raised by financial services firm Paytm’s parent One97 Communications a couple of months ago, which was the largest IPO in India so far.
The Department of Investment and Public Asset Management (DIPAM) is the nodal government agency overlooking the listing of the insurer, including finalising the embedded value, which is crucial to ascribe a valuation to LIC shares.
The embedded value is the sum of the net asset value and the present value of future profits of a life insurance company. It estimates future profits from existing and past businesses through which a life insurance company can be valued.
Global actuarial firm Milliman Advisors has been appointed to assess LIC’s embedded value, which includes valuation of the 65-year-old company’s old policies as well.
“It is expected that about 20% of the shares will be taken by foreign investors, which means that the DRHP has to take into account US regulations as well which specify that for IPO investments, the results have to be updated till a maximum of 135 days before the listing date. So, it’s fair to assume that LIC will have to update its December numbers in its DRHP,” said a second person aware of the deliberations.
Finance minister Nirmala Sitharaman in her budget speech could give the concrete numbers and the timeline of the share sale, these people said.
Over the years, as LIC’s investment book grew, it became an investment company. The latest numbers at the end of FY21 showed that its total income growth increased to the highest in five years, mainly due to investments rather than insurance. Premium income growth slowed to 6% in FY21 from 12% the previous year, while income from investments increased 18%, the highest since FY17 when it had risen 22%.
LIC’s net profit increased 7% in FY21 to Rs 2,907 crore from Rs 2,713 crore the previous year. Premium income grew to Rs 4.03 lakh crore from Rs 3.79 lakh crore.
LIC has made two years of back-to-back investment gains. After gaining Rs 37,000 crore last fiscal year ended March 2021, it has made gains of Rs 30,000 crore until October this year, chairman MR Kumar said in an interview in November.
Analysts are looking forward to the updated numbers to compare them with listed private-sector insurers ICICI Prudential Life Insurance and HDFC Life Insurance.
Updated numbers from the insurance behemoth are also important, especially since its private sector rivals have been hit hard this fiscal year amid rising claims due to mortalities linked to Covid.
Despite a loss in market share over the last decade, LIC is still the largest when it comes to renewal premium with a 63% share, according to a presentation made to investors in December.
LIC dominates rural India with a 71% market share, followed by SBI Life at 7% and HDFC Life at 3%, data from the insurance regulator showed.
The newer companies are relying on digital to expand their reach.
The government is keen to complete the sale this fiscal year as its other plans for stake sales to generate revenues have hit a roadblock.
Listing of LIC will be crucial for the government in meeting its disinvestment target of Rs 1.75 lakh crore for FY22.
So far this financial year, the government has raised Rs 9,330 crore through the sale of minority stakes in PSUs and the sale of SUUTI (Specified Undertaking of the Unit Trust of India) stake in Axis Bank.
