Proposed IPO of Indian LIC could be India’s Aramco moment

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In her Budget 2020 speech, India’s Finance Minister Nirmala Sitharaman announced to sell stake in the state-run insurance behemoth Life Insurance Corp. (LIC). If some reports are to believed, then this LIC IPO (Initial Public Offer) could be the IPO of the decade, or something similar to the Saudi Aramco listing, which was the largest public offering globally.

Not too soon

LIC IPO could come in the second half of the next financial year. As per the authorities, many processes need to be followed to ensure a smooth flow of the IPO process. Additionally, the government will have to make a few legislative changes as well.

“We will follow the extant procedure for listing and for other things including the legislative changes it requires in consultation with the Ministry of Law and that process we already started … listing in the second half of FY21 seems logical,” Finance Secretary Rajiv Kumar said, according to Moneycontrol.

Talking of how much stake the government plans to sell, Kumar said it could be 10%, but added that no official decision had been taken yet. Currently, the government owns 100% of LIC.

LIC has several subsidiaries, including IDBI Bank. The Indian government plans to sell its remaining stake in IDBI bank as well. It is expected that the government wants to raise about Rs. 90,000 crore (or $13,528 million) from selling stakes in IDBI Bank and LIC.

India’s Aramco moment

The current value of the government’s stake in IDBI is around Rs. 16,576 crore ($2491 million). Based on this, the LIC could be valued at Rs. 73,423 crore ($11036 million). Analysts, on the other hand, estimate valuation of Rs 8-10 lakh crore. Based on this, it could become the country’s biggest company by market capitalization.

Other big insurance companies in India are mostly listed, such as SBI Life Insurance Company with a market cap of about Rs 89,400.35 crore and ICICI Prudential Life Insurance with a market cap of Rs 65,345.64 crore. Currently, the biggest company in terms of market capitalization is Reliance Industries. It has a market cap of about Rs 8.77 lakh crore.

Many believe LIC IPO could be India’s Aramco. Recently, it came to light that the Saudi Arabian oil major company could be the biggest company globally in terms of market capitalization. Aramco, in December, priced its IPO at the top end of its targeted range allowing the company to raise a minimum of $25.6 billion by selling just 1.5% of its total shares or 100 crore shares. Aramco was the first company to hit a $2 trillion valuation.

LIC IPO: what does it mean?

LIC is the 60-year-old state-owned firm and is the country’s largest insurer, with over 70% of the market share. It is the market leader both by premiums collected and the number of policies.

Experts see LIC IPO as a positive move from the government. They believe it would give a boost to corporate governance and transparency, as well as open up more fund-raising avenues for the government. Some also say that it could help the government meet the fiscal deficit.

Many believe the move would help to attract more foreign investments into India as well. LIC could be India’s biggest market cap company, and when such a company gets listed, it could uplift India’s weight in the MSCI Emerging Market index. As a result, the country would get more foreign investment.

Following the announcement of LIC IPO by the Finance Minister, many expressed concerns that it could impact benefits assured to policyholders. Sitharaman, however, addressed those concerns saying the ownership will still remain with the government.

“We have only said an IPO. We have not given complete ownership to somebody,” she said.

Explaining why the government wants to list LIC, Sitharaman said listing the company on a stock exchange “disciplines” a company, gives them access to financial markets, as well as helps to unlock value.

“It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO),” she said in her Budget speech.

LIC is not the only state-owned company for which the government plans to sell stake. The government is also planning to sell Bharat Petroleum Corp. Ltd (BPCL) and Air India.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com

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