The government may not be required to change the laws to allow foreign participation in the first sale of shares proposed by the insurance giant Life Insurance Corporation of India (LIC), the sources said.
Foreign participation would be allowed under the listing rules of the Securities and Exchange Board of India (SEBI) and existing sectoral FDI guidelines, they added.
In addition to the government and the Reserve Bank, foreign investment in the insurance sector is also regulated by the Insurance Law, the IRDA Law and the regulations promulgated therein, which are implemented by the sector regulator IRDAI.
LIC’s Initial Public Offering (IPO) would also be based on IRDAI capital regulations.
If clarification is needed, the government can propose changes to the relevant regulations, the sources said.
To facilitate the inclusion of LIC, the government made changes to the Life Insurance Corporations Act of 1956 earlier this year.
Under the amendment, the central government will hold at least 75 percent of the LICs for the first five years after listing and will hold at least 51 percent at all times after five years after listing.
The authorized share capital of LIC is 25 billion rupees, divided into shares of 2.5 billion rupees of 10 rupees each, according to the amended legislation. Up to 10 percent of the issue volume of the LIC IPO would be reserved for policyholders.
In her speech on the 2021 budget, Finance Minister Nirmala Sitharaman said that LIC’s IPO would begin on April 1 of the fiscal year. The government currently owns 100 percent of LIC’s shares.
After going public, LIC is likely to become one of the largest domestic companies by market capitalization with an estimated valuation of Rs 810 lakh crore.
The Department of Investment and Management of Public Assets (DIPAM), which manages the state’s interests in state-owned companies, hired the insurance company Milliman Advisors to determine the implicit value of LIC in order to meet the government’s divestment objective .
Last month, DIPAM appointed 10 commercial bankers, including Goldman Sachs (India) Securities, Citigroup Global Markets India and Nomura Financial Advisory and Securities (India) to lead the mega IPO of the country’s largest insurer.
Other selected bankers are SBI Capital Markets, JM Financial, Axis Capital, BofA Securities, JP Morgan India, ICICI Securities and Kotak Mahindra Capital Co Ltd.
The Cabinet Economics Committee approved LIC’s IPO proposal in July. The listing of
LIC will be vital for the government to meet its divestment target of Rs 1.75 lakh crore for 202122 (April-March).
So far this fiscal year, Rs 9.110 billion has been absorbed through the sale of minority interests in PSU and the sale of SUUTI’s stake in Axis Bank.
