- Alok Joshi
- Senior Economic Journalist
12 minutes ago
Image source, LIC INDIA/BBC
Life Insurance Corporation of India (LIC) has launched its initial public offering (IPO) on the morning of May 4. You can apply until May 9.
Families who do not take LIC policy i.e. are not insured are less likely to be in our country. LIC’s IPO is coming now. The question now arises as to what the big deal is.
Life Insurance Corporation of India (LIC) is the largest insurer in India and the fifth largest life insurer in the world.
It is also one of the largest landowners in the country. That is, the company owns most of the most valuable assets in various cities across the country. LIC is the largest investor in the Indian stock market.
Even if all the mutual funds in the country are combined, they can only raise half of LIC’s investment in the market. That is why stock market investors have been waiting a long time for the government to decide whether to sell LIC’s shares or not.
In last year’s budget, the finance minister had put forward the idea of selling 5 to 10 per cent stake in LIC. After that the wait got even more exciting. LIC’s IPO is very important to the government. Because the proceeds will help the government achieve its share sale target.
What is the property value of LIC?
This is a very difficult question. Most of the time from the Finance Minister’s announcement to the IPO is spent calculating the market value of LIC’s assets across the country and, after all, LIC’s total assets.
Image source, Getty Images
Only then can the government calculate at what price LIC should sell its shares. In addition, it is necessary to add the value of LIC’s insurance business and its total investment in the stock market. All in all, the experts concluded that if the value of LIC is calculated mathematically, it would be around Rs 5.4 lakh crore.
This is also called the embedded value. But when companies enter the market, they have to decide how many times more they can sell their shares in the market at this price.
The price is determined by what the future of the company will look like, and at what rate this price may increase.
There are many more things like how much grip the company has in the market i.e. how hard the competition is or how easy it is. Based on that, the consultants found that the value of LIC was about Rs 13 lakh crore, which is about two and a half times more.
But after consulting with investors and advisers, the government is going to sell LIC’s shares in the IPO at a price 1.1 times higher than the indirect price.
This is due to market conditions and the uncertainty created by the Ukraine war. That is why the government, which had decided to sell five to 10 per cent stake in LIC, now sells only 3.5 per cent stake, which means the size of the IPO has become much smaller.
However it is by far the largest IPO in the Indian market. The government is preparing to raise about Rs 2,0557 crore by selling 221,374,920 shares. Prior to this, Paytm owned the largest IPO to date. Of this, 18.5 thousand crore rupees was collected.
Why was LIC’s IPO delayed?
LIC is not like other companies. In 1956, when the Government of India nationalized the life insurance business, it enacted a special law to merge the businesses of all life insurance companies in the country to form LIC. Under this, all the shares of LIC were owned by the government.
Image source, Getty Images
The company has grown so large that it even takes time to calculate its value. And the government feared that even the sale of its 5 to 10 per cent stake would cause a setback for the stock market.
Arrangements were therefore made to change the rules and allow foreign investors to apply directly for the IPO. In addition, a separate provision was made for LIC policyholders. After making all these arrangements, the government applied to the SEBI for an IPO in February.
Recently got approval from SEBI. But in the meantime the government had to reduce its IPO size due to the uncertainty in the market due to the Ukraine war. It was previously estimated that it could raise between Rs 60,000 crore and Rs 1.5 lakh crore. But now this IPO is only around Rs 20,000 crore.
Will the government soon sell more shares of LIC in the market?
According to the rules, in any company listed on the stock exchange, at least 25% of the shares must be owned by the public i.e. non-owners of the company. Under this rule, the government must reduce its stake from 100 percent to 75 percent.
Government agencies will have some more time to implement this rule. That is why it has been given special permission to sell only 3.5 per cent stake in LIC.
The government had earlier said it could sell another 10 to 20 per cent of the shares in two or three years. The government has to do it according to the rules.
But for those who are investing in IPOs today this may be a matter of concern. That is why the government has promised not to sell its remaining shares in the market for at least a year after the IPO. So existing shareholders, do not be afraid that the price of their shares will fall suddenly.
Why are shares issued to LIC policyholders?
This is the first time a company has turned all its customers into its partners. The reason is that when the government was ready for LIC’s IPO, there was a fear that there would be full demand in the market for such a big IPO.
Image source, Getty Images
That is why this unique way was thought. LIC has about 29 crore policyholders. Most of them do not invest in the stock market.
Experts believe that even if 10% of them apply for LIC shares, they will get double benefit. One is to increase LIC’s chances of winning an IPO, and the second is to enter the stock market. Then they may think about investing elsewhere.
This is why not only LIC and the government but the stock market as a whole is excited about this. LIC Agents have been busy working on this for months. They also tell policyholders the benefits of becoming a partner and the ways to do it.
Are LIC shares available free of cost to policyholders?
No. These shares are not available for free to anyone. Policyholders also have to pay a price for it. There is a separate quota for them.
Ten per cent or 2 crore 21 lakh shares have been allotted to policyholders in this IPO. They will also be given a discount of Rs 60 per share. The price of shares bought by public investors ranging from Rs 902 to Rs 949 ranges from Rs 842 to Rs 889 for policyholders.
What does the policyholder have to do to get these shares?
LIC has long been advising policyholders on what to do with its agents and advertising. The most important thing is to link the policy with the ban card. This allows you to apply for shares under the policyholder quota.
Image source, Getty Images
Those who have purchased the policy till April 22 can avail this opportunity. However, older policyholders must complete the process of linking their policy and PAN number by February 28. Six crore people have linked their policies with PAN, the LIC chief said.
Even if they apply for one lot, that is, 15 shares, applications for about 100 crore shares will come.
After this, when filling up the IPO form, the policyholder should inform that he is applying under the quota. His PAN number will be proof that he is a policyholder.
60 rupees cheaper if the shares are available. It will go directly to the demat account. So they need to have a demat account. If you do not have a demat account until now, you can open it now.
Does the policy determine how large or small the number of shares available?
No. Everyone has the opportunity to apply under this quota, whether the policy is large or small. Thereafter, all will be treated equally and shares will be issued. If applications are received for more shares than allotted, the lottery formula will be decided and the shares will be awarded accordingly.
What is the minimum number of shares that can be applied for?
Both the policyholder or the general public are required to apply for at least one lot i.e. fifteen shares. Can’t apply less than this. Under the policyholder quota, a maximum of two lakh rupees can be applied for.
That is, a maximum of 14 lots can be applied for. General applicants can apply for a minimum or maximum of the same number.
Image source, Getty Images
Nirmala Sitharaman
If you want to apply for more than Rs 2 lakh, you can apply only under HNI or High Networth Individual category. There is no ceiling on investment in this category.
Can I make more than one application?
Although it is not possible to make more than one application in an IPO, for the first time in LIC’s IPO, policyholders can make two applications using the same ban card. That means the policyholder can make an application under the quota. The general investor section or HNI section may submit another application. Those who do not have an LIC policy or have not linked their policy with the PAN can submit only one application.
When can I apply for an IPO?
LIC’s IPO opens on May 4th. It ends May 9th. The application can be made in the meantime. Those thinking of applying on the last day should keep in mind that on some online sites the application deadline ends a bit early. So it is better to finish this work by 12 noon on that day.
Would it be beneficial to apply for LIC’s IPO?
The answer to this question will be different for each person. The company has been spearheading profits for a long time. Whatever price the stock is going to come out of, it is fine. But it is unknown at this time what he will do after leaving the post. So every investor should make a decision only after consulting with their trusted investment advisor.
BBC Tamil on social media: