Govt may allow 20% foreign investment in LIC public issue

LIC's Saral Pension Plan is an easy to understand pension product.

The government is weighing a proposal to allow foreign investors to take up as much as 20 percent stake in Life Insurance Corporation of India (LIC) when it will go public.

The listing is expected to fetch anything between Rs 400 billion and Rs 1 trillion from the dilution of 5-10 percent state holding in LIC. The government is looking at a valuation of Rs 8-10 trillion for the insurance behemoth.

While India's FDI (Foreign Direct Investment) rules permit up to 74 percent overseas shareholding, it does not apply to LIC, a special entity created through an act. Conventionally, any stake purchase in a listed company that exceeds 10 percent undertaken by an individual or a firm based abroad is defined as FDI by the Reserve bank. 

Private discussions and deliberations are underway on amendments to these rules so that investors can take up a share in LIC minus any government intervention in an automatic manner. 

With the pandemic affecting the tax collection targets, the government relied heavily on the LIC public issue to meet its budget deficit targets for 2021-22. While a potential listing is expected to take place between January and March 2022, the move could open multiple avenues for foreign firms to not just participate in the LIC IPO, but also lap up a significant stake in the insurer after its listing.