LIC: If you have an LIC policy, then what will be the benefit of this IPO, know everything

Today is a very special day for India’s largest insurance company Life Insurance Corporation of India i.e. Life Insurance Corporation of India (LIC). LIC Act was passed by Parliament on 19 June 1956 and under this LIC was established on 1 September 1956.

Since then LIC has grown into the largest insurance company in India. Now coming to the situation today. The central government is preparing to bring the Initial Public Offer (IPO) of LIC. In July itself, the Economic Affairs Committee of the Union Cabinet has approved the IPO of LIC. After the IPO, the company will be listed in the stock market of India. This is expected to meet the disinvestment target of the government.

Earlier Milliman Advisors was appointed to calculate the price of LIC. One of the 16 merchant bankers, including global companies HSBC, Goldman Sachs, Bank of America, Citigroup and BNP Paribas, will manage the company’s public issue. Its name will be decided soon. A group of ministers will work out an alternative framework for strategic disinvestment, which will determine the figure of the offer.

This is the big talk of LIC’s IPO. Now the question arises that why LIC’s IPO is coming? If you have an LIC policy, will you get any benefit from this IPO? Know the answers to these and other similar questions-

Why is LIC’s IPO coming up?

• The central government had set huge disinvestment targets in the last few years, but it could not be met. Efforts to sell stake in Air India and BPCL are being postponed due to many other reasons including Kovid-19. It is expected that in this financial year, the government can move forward in this direction.
• As far as the current financial year 2021-22 is concerned, the government has set a target of earning Rs 1.75 lakh crore through disinvestment. This will be completed only if LIC’s IPO is successful. Till now the date of LIC’s IPO has not been decided, but it is expected that it will get listed in the third or fourth quarter.

How much does the central government want to earn from this IPO?

• Chief Economic Adviser K. Subramaniam had said in March that LIC’s IPO could earn up to Rs 1 lakh crore for the government. Major changes have been made in the LIC Act 1956 to move forward on IPO and listing. How many shares will be sold and in which price band they will be, it has not been decided yet. With the change in the law, the authorized share capital of LIC 25 thousand crores has been divided into 2,500 crore shares worth Rs 10.
• The central government plans to sell stake in National Fertilizers, Mishra Dhatu Nigam and Rashtriya Chemicals and Fertilizers through Offer for Sale (OFS) ahead of LIC’s IPO.

How will this IPO prove beneficial for the policyholders?

• The government has said that it will reserve 10% of the shares from the IPO issue size of LIC for policy holders. In the changes made in the LIC Act in 2021, it has been said that just as shares are reserved for employees in a public issue, the same reservation will be made for those holding LIC policies. It will be on competitive basis.
• Markets regulator SEBI regulations state that in any issue not more than 10% of the proposed issue price shall be under employees and reservations. The law of the market also states that the company can issue shares to the employees by giving a maximum discount of 10% of the floor price. There are reports that the government may offer LIC policyholders a discount on the issue price.
• At present, LIC pays 5% of its surplus to the government and the rest to the policy holders. After getting listed, LIC will have to distribute its profit as dividend with the shareholders. This would require a change in the process. However, the sovereign guarantee given by the government on the policy will continue even after the IPO. That is, if for some reason the company fails to pay the claim, then the government will pay it.

Why is there talk of split IPO?

• There have been many IPOs in the stock market in the recent past. Food delivery facilitator Zomato has issued an issue of Rs 9,375 crore. Overall investors have invested Rs 27 thousand crore between April and July.
• Paytm’s IPO is also coming, which will be around Rs 16,600 crore. It is being called the biggest IPO ever. Earlier in 2010, Coal India’s IPO came and Rs 15,200 crore was raised through it.
• By the time LIC’s IPO comes, it has to be seen how much money is left with the investors. LIC’s IPO will be the biggest ever, bigger than Paytm. In such a situation, market analysts feel that investors should have enough money to buy LIC’s IPO.
• In such a situation, suggestions are coming that instead of bringing them together, the IPO should be brought in two parts. Under this, one lot of shares will be offered first. After some time the second part may be offered. If this happens then it will be the first time in India.

Is SEBI ready for LIC’s IPO?

• Yes. If such a big IPO is coming, SEBI has to make special arrangements for it. He changed some rules in February. Promoters of companies with a capital of Rs 1 lakh crore have been allowed 10% public shareholding in two years. This public shareholding can be increased to 25% in five years. Before February, a company with a market cap of Rs 4,000 crore or more had to make 25% of its shares public in three years.

Why is the market so excited about LIC’s IPO?

• According to the insurance regulator IRDAI, till 2019, the number of insurance takers in India was only 2.82%. That is, there are about 97% of Indians who are out of insurance cover. If they are given insurance then this market can grow rapidly.
• It is not that the insurance market has not progressed. Private insurance companies are also doing business in India for two decades. Even after this, the market share of LIC remains 66.2%, which shows that people’s trust remains in the government company.
• In addition, LIC is one of the largest investors in the country. According to primeinfobase.com, the equity holding of LIC as on 31 March 2021 was Rs 7.24 lakh crore. It has at least 1% stake in the top 300 companies in the country. This makes its future prospects even stronger.
• In the financial year ended March 31, 2021, LIC received Rs 1.84 lakh crore as first year premium. LIC has a network of 2.9 lakh employees and 22.78 lakh agents. According to industry pundits, even if its 22 lakh agents sell just one policy in a year, it can create huge volumes.
• LIC is the second largest financial services company in India with a balance sheet of Rs 31 lakh crore. The largest is State Bank of India, which has assets of Rs 39.5 lakh crore.