The government will sell 5% of its stake in the country largest insurer Life Insurance Corporation of India (LIC) through an initial public offering (IPO), which may fetch it Rs 71,000 crore based on the calculated embedded value.
The government will put on sale 316,249,885 equity shares through an offer for sale (OFS), according to the draft red herring prospectus (DRHP) filed with the Securities Exchange Board of India (Sebi).
"The IPO is 100% OFS by GOI and no fresh issue of shares by LIC. For filing valuation about 31.6 crore shares are on offer representing 5% equity," department of investment and public asset management (DIPAM) secretary Tuhin Kanta Pandey tweeted on Sunday evening.
At an embedded value of Rs 5.39 trillion, the government is valuing LIC at Rs 15 trillion. Mint reported last week that the government will sell at least 5% equity through stake sale, which will have reservation for employees and policyholders.
LIC has a 66% market share in new business premiums with 283 million policies and 1.35 million agents as of 31st March, 2021, according to Pandey.
Back of the envelope calculations show the offer size comes to Rs 27,000 crore that can be sold at nearly three times the value coming to Rs 71,000 crore. At this level, the listing will become the largest for the government and the proceeds can help it surpass the divestment target of Rs 78,000 crore set for FY 22.
Pandey had earlier said the government aims to bring the largest ever IPO to the market within this financial year, by March 2022.
The DRHP specifies that the employee reservation portion shall not exceed 5% of the post-offer equity share capital, which may be offered on a discount. Further, policyholder reservation portion will not exceed 10% of the offer size, which may also be offered on a discount.
About 60% of the qualified institutional bidders (QIB) portion may be allocated to anchor investors on a discretionary basis. One third of this portion will be reserved for domestic mutual funds, subject to valid bids at or above anchor investor allocation price.
"In the event of under-subscription in the Anchor Investor Portion, the remaining Equity Shares shall be added to the Net QIB Portion," the DRHP stated.
"Subject to valid Bids being received at or above the Offer Price, under-subscription, if any, in the Non-Institutional Portion or the Retail Portion, would be allowed to be met with spill over from any other category or combination of categories of Bidders at the discretion of our Corporation and the Selling Shareholder in consultation with the Book Running Lead Managers and the Designated Stock Exchange," the prospectus stated.
Actuarial firm Milliman Advisors LLP India has worked out the embedded value of LIC, while Deloitte and SBI Caps have been appointed as pre-IPO transaction advisors. The government has appointed 10 merchant bankers, including Goldman Sachs (India) Securities Pvt Ltd, Citigroup Global Markets India Pvt Ltd and Nomura Financial Advisory and Securities (India) Pvt Ltd, to manage the mega IPO of the country's largest insurer.
