With the government, on Wednesday, gezettifying the 27 of amendments in LIC Act 1956 that are part of the Finance Act 2021, the 65-year old Life Insurance Corporation, with over Rs 35 trillion of assets, stands corporatised to facilitate its mega IPO(Initial Public Offering) and listing in the domestic stock exchanges.
LIC has also appointed Arijit Basu, former MD of State Bank of India(SBI) and former MD & CEO of SBI Life, who had led the life insurer to be listed in the stock exchanges, as a consultant, to help the corporation in launching the mega IPO.
Post amendment, like any other listed company,the corporation is now also governed by the Companies Act and Sebi Act(post IPO) and has to prepare its quarterly balance sheet with profit or loss figures.
Post amendment of LIC Act 1956,the authorised share capital of the corpioration will be Rs 25,000 crore divided into 2,500 crore shares of Rs 10 each, as per the amendments.
Industry sources point out, it is yet to be known how and when the government which is currently the sole shareholder will infuse this capital.
Currently, LIC has a capital base of Rs 100 crore.
In the orginal LIC Act 1956, the word `profitability was not there and it was stipulated any surplus, that is calculated with actuarial framework, will be distributed between policy holders and government(sole stake holder) in the ratio of 95:5.
But from today, the policy holders of the corporation will receive 90 per cent of surplus(or any higher amount as decided by its board) generated by the corporation while the rest as dividends will go the government and other shareholders who will be investing in the LIC through its Initial Public Offering(IPO).
Sources at LIC explain that though it looks like that post IPO, LIC’s policy holders may get lesser bonus than what they are getting now as instead of 95 per cent, 90 per cent of annual surplus will be distributed as bonus, in actuality it may not happen that way as the corporation will find new ways to continue to offer same level of bonus to its customers.
According to one of the 27 proposed amendments, the central government will hold at least 75 per cent in LIC for the first five years post the IPO, and subsequently hold at least 51 per cent at all times after five years of the listing.
The corporation now also is allowed to raise resources through securities,including bonds, debentures, notes, commercial paper and other debt instruments,to meet its business requirements.
The amendments have also mandated that the corporation, with the approval of the board,publish on its website its surplus distribution policy at least once in five years, or such shorter period not less than three years as the board may deem fit,
The board of directors of the corporation will consist of the directors, not exceeding fifteen, of whom at least one has be a woman,
LIC’ board will have two officers of the Central Government not below the rank of a joint secretary to the Government of India to be nominated by the Central Government.
Also two individuals will be nominated by the Central Government, who have special knowledge or practical experience in many professionals areas like actuarial science, business management, economics, finance, human resources,information technology, insurance, law, risk management.
Sources point out that the LIC also is revamping all its internal systems involving many areas of operations that will make it an efficient listed organisation meeting the expectations of both policyholders as well as new shareholders.
The government has also proposed to significantly increase the authorised capital of Life Insurance Corporation of India (LIC) to Rs 25,000 crore to facilitate its listing Currently, the paid-up capital of the life insurance company with over 29 crore policies is Rs 100 crore.
Starting with an initial capital of Rs 5 crore in 1956, LIC has an asset base of Rs 31,96,214.81 crore as on 31st March 2020.
The amendments proposed as part of Finance Bill 2021 will lead to the setting up of a board with independent directors in line with listing obligations
Up to 10 per cent of the LIC IPO issue size would be reserved for policyholders, Minister of State for Finance Anurag Thakur had said last month.
The government will remain the majority shareholder and will continue to retain management control, safeguarding the interest of policyholders, he had said.
Currently, the government owns 100 per cent stake in LIC. Once listed, it is likely to become the country’s biggest company by market capitalisation with an estimated valuation of Rs 8-10 lakh crore.
The Department of Investment and Public Asset Management (DIPAM), which manages the government’s equity in state-owned companies, has already selected actuarial firm Milliman Advisors for ascertaining the embedded value of LIC for meeting the government’s disinvestment target.