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Will LIC IPO be launched this fiscal?

A source who spoke to PSU Watch said that the LIC IPO, one of the biggest disinvestment plans for the current fiscal, is unlikely to happen this year

A source who spoke to PSU Watch said that the LIC IPO, one of the biggest disinvestment plans for the current fiscal, is unlikely to happen this year.
  • 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

  • The government had finally ventured ahead and began the process for partial disinvestment of its stake in LIC through an IPO on June 19

New Delhi: One of the biggest disinvestment plans for the current fiscal — LIC IPO — which the Centre is relying on to raise Rs 90,000 crore of its total disinvestment target is unlikely to happen this year, a source in the know of the matter has claimed. The source, who spoke to PSU Watch, on the condition of anonymity, said, “It looks difficult that the plan will fall through this fiscal, even if the process has been started. There is a lot that needs to be done. Amendments will have to be passed. And the evaluation process will also take time. But even if it doesn’t happen this year, we are expecting it to get pushed only by 2-3 months to the next fiscal year.”

Govt started process for launch of LIC IPO on June 19

After much deliberation, the government had finally ventured ahead and began the process for partial disinvestment of its stake in LIC (Life Insurance Corporation) through an IPO. A notification posted by the DIPAM (Department of Investment and Public Asset Management) in this regard on June 19 sought to engage pre-transaction advisors for the partial disinvestment of the government’s equity shareholding in LIC.

The IPO plan is one of the biggest disinvestment exercises being taken up by the government in the current financial year. An announcement in this regard was made by Finance Minister Nirmala Sitharaman in February while presenting the Union Budget.

Explained: The legal and legislative hurdles on the way

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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