InvestorQ : What are the next steps for the government to disinvest the stake in LIC?
sarah Leo made post

What are the next steps for the government to disinvest the stake in LIC?

Rashi Mehra answered.
1 year ago

The Union Budget paved the way for the proposed IPO of LIC during the coming financial year. It will be the largest IPO coming from India. One of the major preparatory moves will be the amendment of the LIC Act so that it can be brought under the Companies Act to ensure that LIC does not face regulatory hurdles during the proposed sale of shares.

LIC currently has assets of Rs.34,00,000 crore and the government holds 95% of LIC. The first step will be arriving at a valuation of the business based on actuarial estimates. The FM has already clarified that the government stake will not go below 75% in the first 5 years and is unlikely to go below 51% in the future; effectively retaining management control.

LIC has a dominated position in India. Just consider these numbers. For the 9 months of fiscal 2021, LIC recorded new business premium of Rs.130,000 crore which is more than double the combined premium collected by all private life insurers put together. SO leadership is an advantage that has to be monetized in this IPO.

Apart from amending the LIC Act, because LIC was formed under statute of parliament, the IPO also requires a change in its audit and accounting policies. In addition, there has to be a modified way to distribute the surpluses, which is currently 5% as against the industry average of 10%.

In addition, amendments are also needed for Section 24 which deals with the way the insurer handles its corpus. There is also the need to amend Section 28 which handles the dividend distribution norms and methodology. Finally, there is also an open issue on continuation of Section 37 providing government guarantee on all LIC policies.