New Delhi: The Department of Investment and Public Asset Management (DIPAM) has floated a global tender on Monday for engaging an actuarial firm for the initial public offer (IPO) of Life Insurance Corporation (LIC). The IPO plan is one of the biggest disinvestment exercises being taken up by the government in the current financial year. The Centre is expecting to raise Rs 90,000 crore from the offer. An announcement in this regard was made by Finance Minister Nirmala Sitharaman in February while presenting the Union Budget.
The government is expected to take about 8-9 months to prepare accounts and do the required legal work before an IPO could be launched because the listing will require amending the LIC Act. Amendments will have to be made to Sections 24, 28 and 37 of the Act. While Section 24 deals with the way the corporation handles its corpus, Section 28 pertains to dividend distribution norms and Section 37 focuses on government guarantee on all its policies. Currently, LIC pays 5 percent of the surplus to the government and the remaining 95 percent goes to its policyholders. This will have to relooked as LIC gets listed and the corporation will have to offer dividend to an external shareholder apart from the government.
Private insurance companies pay 10 percent of their surplus to shareholders, while the rest goes to policyholders. LIC's equity capital, which currently stands at Rs 100 crore will also have to be increased in order to sell even a 10 percent stake.
In order to deal with these issues, the RFP floated by DIPAM mandates the advisors to evaluate the capital structure of LIC and advise the government and LIC on optimal capital structure, including authorised capital, face value and bonus ratio, including any other alternatives to restructure the capital base and so on.
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