According to the amendment to the LIC Act through the Finance Act 2021, the government could dilute only 25% stake in LIC in the first five years and the government equity won’t fall below 51% at any point in time.

Ahead of the mega initial public offer (IPO) of the Life Insurance Corporation (LIC) slated for the March quarter of the current financial year, the government will likely approve 20% foreign investment limit in LIC equity, an enabling provision aimed at attracting foreign investors in the IPO. However, full utilisation of the foreign investment limit will take long.

According to the amendment to the LIC Act through the Finance Act 2021, the government could dilute only 25% stake in LIC in the first five years and the government equity won’t fall below 51% at any point in time. “So, 49% public float in LIC is a long way to go,” an official familiar with the matter told FE.

LIC listing, which will be the largest ever IPO in India, is expected in March 2022. The IPO could include offloading of up to 10% government stake and some fresh equity issuance by the insurer for business expansion plans. In the IPO, there would be a reservation of about 35% for retail investors, 50% for qualified institutional bidders (QIB) and 15% for non institutional investors (high networth individuals and Hindu undivided family, etc). Foreign investors would come in the QIB category which includes domestic institutional investors also. Later, foreign investors could buy LIC shares from secondary market.

“The size of the IPO will be decided after the valuation exercise is completed. Accounting transition is also going on (restating books of accounts in compliance with the Companies Act). The DRHP will be filed after books of accounts till September are ready…by December-January,” department of investment and public asset management (DIPAM) secretary Tuhin Kanta Pandey had told FE recently.

While the valuation of the insurer will be known closer to the listing, it is believed to be worth Rs 8-11.5 lakh crore, meaning a 10% stake sale could fetch the government around Rs 80,000-1,00,000 crore.

Of the disinvestment target of Rs 1.75 lakh crore for FY22, the Centre has budgeted Rs 75,000 crore from the privatisation of some CPSEs such as BPCL and minority stake sales in CPSEs and another Rs 1 lakh crore from disinvestment of government stake in “public sector financial institutions” (read LIC) and banks. So, LIC IPO is crucial if the government has to reach close to the FY22 disinvestment target.

https://www.financialexpress.com/industry/govt-may-permit-20-fdi-limit-in-lic/2352715/