The government on Friday initiated the process of selling part of its stake in the nation’s largest insurer, Life Insurance Corporation of India. As on date, it is fully owned by the Central Government.
The insurer’s initial public offer (IPO) is expected to hit the market during the second half of the current fiscal.
The Department of Investment and Public Asset Management (DIPAM) under the Finance Ministry issued a Request for Proposal (RFP) regarding engagement of pre-Transaction Advisors for partial disinvestment of the government’s equity shareholding in LIC through an IPO. The proposal is to engage up to two pre-IPO Transaction Advisors from reputed professional consulting firms/ investment bankers/ merchant bankers/ financial institutions/ banks, independently (not in consortium) for facilitating or assisting DIPAM in the preparatory processes leading to the IPO of LIC India.
This is the first major development in terms of LIC’s IPO almost four-and-a-half months after its announcement in the Budget. In her Budget speech of 2020-21, Finance Minister Nirmala Sitharaman said, “Listing of companies on stock exchanges disciplines the companies and provides access to financial markets and unlocks its value. It also gives an opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of an initial public offer (IPO).”
The RFP mentioned that the appointed Transaction Advisor will be required to guide the process of preparation of LIC for the IPO. This would mean undertaking tasks related to all preparatory aspects of the proposed IPO, and would include, but not be limited to, advising and assisting GOI on the modalities of the IPO and the timing; recommend the need for other intermediaries required for the process of IPO and also help in the identification and selection of the same with proper Terms of Reference; preparation of all documents like RFP, Confidentiality Agreement, etc; structuring the transaction; organising non-deal roadshows, suggesting measures to fetch optimum value; and positioning of the minority sale, among others.
According to the RFP, the prospective advisor can seek clarification online till June 29. There will be a pre-bid meeting on June 30, and the bid can be submitted till July 13. It will be opened the next day.
Though the RFP has not mentioned how much stake is to be sold, it is expected to be not more than 10 per cent. Since LIC is not a listed entity, it is not immediately known how much the government can earn out of the exercise. However, Budget documents show the government has set a target of mopping up ₹2.1-lakh crore through disinvestment, of which ₹90,000 crore would come from the sale of stake in IDBI Bank and LIC.
LIC was established in 1956 through an Act of Parliament. Governed by the Life Insurance Corporation Act, 1956, every LIC policy is guaranteed by the government. There have been questions on what would happen to this guarantee. However, the government has repeatedly clarified that the sovereign guarantee will continue. Also, there is a line of thinking in government circles to amend the LIC Act before the IPO to ensure this guarantee continues to remain in place.