The finance ministry will hold discussions with Securities and Exchange Board of India (Sebi) to decide a roadmap for stake dilution in Life Insurance Corporation of India (LIC) to adhere to minimum pubic shareholding norms, Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said.
DIPAM will discuss with Sebi and Department of Economic Affairs (DEA) for seeking an exemption from meeting the 25 per cent minimum market float, Pandey said. This is because even a 5 per cent stake dilution in LIC through the IPO was seen upsetting the market given the current circumstances.
“Going forward the roadmap for a very large player like LIC, we will be discussing with SEBI and Department of Economic Affairs to see what is the right kind of roadmap for minimum public shareholding (MPS)...even 5 per cent we thought would be little upsetting to the market at this point of time. Similar situation may arise in future, and the government is congnizant of this situation,” Pandey said.
As per the Securities Contracts (Regulation) Rules, companies valued over Rs 1 trillion have to increase their public shareholding to at least 25 per cent within five years from the date of listing.
“If this period of five years for stake dilution is not increased, it will be a problem. As the valuation of LIC is Rs 6 trillion, and if valuation increases post listing...this would become like a mega IPO every year,” Pandey said.
The government is also not looking to dilute any further stake in LIC for at least a year. “Sebi norms require the government to not dilute any further stake in the next six months, but the government has voluntarily opted for an additional six-month period, so there would not be any follow-on offering for at least one year, DIPAM Joint Secretary Alok Pande said.
"We had to seek special SEBI dispensation for relaxation for 3.5 per cent stake dilution. The reason for this was a very large corporate was entering the arena. We also had to be mindful of how it impacts the capital market in general. There was a crowding out effect, DIPAM Secretary Pandey said.
Backing the centre's decision on a lower issue size, Financial Services Secretary Sanjay Malhotra said,"norms are only for the normal and not for exceptional cases like LIC. Despite the 3.5 per cent reduction, its (IPO) still the largest," Malhotra said.
The initial public offering (IPO) of LIC will open on May 4 and close on May 9. The Centre is offering to sell 22.13 crore shares, or 3.5 per cent stake, through the issue. The insurer is expected to list on exchanges on May 17 subject to regulatory approvals, Pandey said.
“We want to champion LIC as a long-term value creator in the equity markets,” Pandey said. The IPO also gives LIC an opportunity to reorient and reinvent itself, he added. The board of LIC has become completely different, and the insurer will have to bring several changes to keep pace with requirements for several large listed corporations, he said.
To usher in changes at LIC, the insurer has started recruiting people from the market to bring in expertise, LIC Chairman MR Kumar said. LIC has hired a Chief Financial Officer (CFO), and the insurer will be hiring a chief digital officer and chief risk officer, Kumar said.