Government plans to allow higher foreign investment in LIC IPO

Proposed 20% FDI in LIC’s IPO could take care of budgetary deficit targets for FY 2021-22.

Indian government considers allowing 20% foreign investment in LIC IPO

The highly anticipated Life Insurance Corporation’s (LIC) public offering (IPO) could very well catch some extra heat as the government considers a proposal to allow foreign investors to pick up as much as 20% ownership of India’s largest insurance provider.

If the proposal goes through, international investors/venture funds will be able to pick up stake under the automatic route without going through tedious government processes. 

What is the issue?

While Foreign Direct Investment (FDI) up to 74% is permitted with other domestic insurers, LIC is a special entity created by an act of parliament, and the government had to make amendments to the Life Insurance Corporation Act, 1956 to facilitate this listing.

Related: How Life Insurance Has Progressed In India

Currently, the government has a 100% stake in LIC. As per the amendment, the Central Government will continue to hold at least 75% stake for the first five years post listing and subsequently hold at least 51% at all times. Up to 10% of LIC’s IPO issue size would be reserved for policyholders.

The IPO will be guided by rules of foreign investment in the insurance sector as specified by SEBI and the regulations implemented by IRDAI.

Why is this IPO important?

Related: All About IPOs In India

On listing, LIC will become one of the largest domestic companies by market capitalisation. The valuation is estimated at about Rs 8 to 10 lakh crore, as per estimates of the Department of Investment and Public Asset Management (DIPAM).

The LIC divestment will be a shot in the arm for the Central Government’s budgetary deficit targets for FY 2021-22, pegged at Rs 1.75 lakh crore. 

The Cabinet Committee on Economic Affairs has cleared the listing proposal for LIC, which may come out for subscription between January and March 2022.

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