- Date : 26/02/2021
- Read: 3 mins
A smooth IPO roll out is on the cards for LIC as SEBI relaxes IPO norms and the government proposes amendments in the LIC Act.
In its board meeting held on 17 February 2021, the Securities and Exchange Board of India (SEBI) has agreed to make changes in the public issue norms in India. Coming a fortnight after the government’s proposal to amend the Life Insurance Corporation (LIC) Act, the SEBI decision is expected to ease the process of the mega initial public offering (IPO) to be rolled out by the LIC. The rules of LIC is planned to be brought under the Companies Act to avoid any regulatory roadblock in the IPO exercise.
LIC’s public issue is widely anticipated to be the largest IPO the country has ever seen. A 10% sale of shareholding is expected to raise Rs 1 trillion. The government is hoping that this disinvestment will generate much-needed non-tax revenue and close the gap in the fiscal deficit.
The relaxation of the minimum public offer (MPO) norms will mean that for a company with a post-issue market capital of above Rs 1 trillion, the IPO size has to be Rs 10,000 crore plus 5% of the incremental market capital amount beyond the Rs 1 trillion mark. SEBI further declared that companies of Rs 1 trillion and above will have to disburse at least 10% of their shareholding to the public in two years, and 25% within five years of listing.
At present, companies with a post-issue market capital of Rs 4000 crore or more have to offer at least 10% of their capital to the public in the form of an IPO. The minimum public shareholding of at least 25% has to be achieved within three years of listing. This could have been difficult for a company of LIC’s size. Therefore, the amendment is seen to be beneficial for their upcoming IPO plans.
Related: How IPOs differ from NFOs?
What is LIC’s present shareholding pattern and what would it look like in future?
The government holds 95% of the LIC, which has an asset holding of over Rs 34 trillion. As per the public offer plans, the government will hold 75% of the company in the five years after the IPO. After the end of this five-year period, the government plans to hold at least 51% stake in the company.
What amendments are required in the LIC Act to facilitate the IPO?
Several amendments have been identified as necessary to ensure that the LIC Act doesn’t cause any hurdles in the company’s IPO process. LIC will have to change its audit and accounting policies, as well as the way it distributes its surpluses. Amendment will be required in the way it handles its corpus, its dividend distribution norms, and the provision of the government guarantee on its policies.
The equity capital of LIC at present is Rs 100 crore. The government proposes to increase the authorised share capital to Rs 25,000 crore, with 2500 crore shares of Rs 10 each.
Related: All about IPOs in India
What changes are expected in the LIC board?
The Union Budget has proposed the realignment of the LIC board of directors to a structure more akin to the Companies Act. LIC is expected to have 15 board members, with at least one woman director and four managing directors.
What is LIC’s present financial performance and how does it disburse its surplus?
In the first three quarters of financial year 2020-21, LIC posted a new premium collection of Rs 1.3 trillion. This is two times more than what has been posted by all the private insurers combined. Presently, LIC disburses 5% of its surplus to the government while the remaining 95% is earmarked for its policyholders. Is your IPO rightly valued? Read this to know.
In its board meeting held on 17 February 2021, the Securities and Exchange Board of India (SEBI) has agreed to make changes in the public issue norms in India. Coming a fortnight after the government’s proposal to amend the Life Insurance Corporation (LIC) Act, the SEBI decision is expected to ease the process of the mega initial public offering (IPO) to be rolled out by the LIC. The rules of LIC is planned to be brought under the Companies Act to avoid any regulatory roadblock in the IPO exercise.
LIC’s public issue is widely anticipated to be the largest IPO the country has ever seen. A 10% sale of shareholding is expected to raise Rs 1 trillion. The government is hoping that this disinvestment will generate much-needed non-tax revenue and close the gap in the fiscal deficit.
The relaxation of the minimum public offer (MPO) norms will mean that for a company with a post-issue market capital of above Rs 1 trillion, the IPO size has to be Rs 10,000 crore plus 5% of the incremental market capital amount beyond the Rs 1 trillion mark. SEBI further declared that companies of Rs 1 trillion and above will have to disburse at least 10% of their shareholding to the public in two years, and 25% within five years of listing.
At present, companies with a post-issue market capital of Rs 4000 crore or more have to offer at least 10% of their capital to the public in the form of an IPO. The minimum public shareholding of at least 25% has to be achieved within three years of listing. This could have been difficult for a company of LIC’s size. Therefore, the amendment is seen to be beneficial for their upcoming IPO plans.
Related: How IPOs differ from NFOs?
What is LIC’s present shareholding pattern and what would it look like in future?
The government holds 95% of the LIC, which has an asset holding of over Rs 34 trillion. As per the public offer plans, the government will hold 75% of the company in the five years after the IPO. After the end of this five-year period, the government plans to hold at least 51% stake in the company.
What amendments are required in the LIC Act to facilitate the IPO?
Several amendments have been identified as necessary to ensure that the LIC Act doesn’t cause any hurdles in the company’s IPO process. LIC will have to change its audit and accounting policies, as well as the way it distributes its surpluses. Amendment will be required in the way it handles its corpus, its dividend distribution norms, and the provision of the government guarantee on its policies.
The equity capital of LIC at present is Rs 100 crore. The government proposes to increase the authorised share capital to Rs 25,000 crore, with 2500 crore shares of Rs 10 each.
Related: All about IPOs in India
What changes are expected in the LIC board?
The Union Budget has proposed the realignment of the LIC board of directors to a structure more akin to the Companies Act. LIC is expected to have 15 board members, with at least one woman director and four managing directors.
What is LIC’s present financial performance and how does it disburse its surplus?
In the first three quarters of financial year 2020-21, LIC posted a new premium collection of Rs 1.3 trillion. This is two times more than what has been posted by all the private insurers combined. Presently, LIC disburses 5% of its surplus to the government while the remaining 95% is earmarked for its policyholders. Is your IPO rightly valued? Read this to know.
