LIC: India’s largest Initial Public Offering

February 14, 2022

The Government of India is planning to sell 5% of its share in LIC. LIC is Life Insurance Corporation. With this, the government is trying to raise Rs 65,000 crores.

What is the plan?

10% of the shares are being reserved for eligible policy holders. These shares will carry discounted prices. The plan is to sell 316.25 million shares. This is 5% of the total equity base. The total equity base of LIC is 6.32 billion shares. The pricing of IPO, Initial Public Offering, has not yet been decided. 35% of the shares are to be reserved for retail investors. Discounts are to be provided to LIC employees.

Significance

The IPO is to help Government of India in achieving its target. In the fiscal year 2021-22, the Government of India had set a divestment target of Rs 2.1 lakh crores. However, the target counldnt be achieved. For the fiscal year, 2022-23, the divestment target is Rs 78,000 crores.

Embedded Value

The Embedded value of LIC is Rs 5,39,686 crores. Embedded value is the measure of total value of the company. This includes the future profits as well. Also, it includes the value held by the share holders.

Current Market Scenario

Currently the private market insurance companies are trading at twice or thrice their embedded value. Predicting with this, the market capitalization of LIC can be between Rs 10.8 lakh crores and Rs 21.6 lakh crores. The most valuable firm right now is Reliance Industries. The market capitalization of Reliance is Rs 16.1 lakh crores.

Initial Public Offering

The IPO is providing the shares of private corporation to the public. The fund raised through IPO is used in further development of the business. It helps in publicity, fundraising, exit opportunity, etc. Also, it helps in the expansion of the company. The transparency in the process brings credibility.

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