While there has been speculation about the number in Indian media – from as low as $53 billion to as high as $150 billion – this is the first time the government, which owns 100% of LIC, is commenting on the matter.
The embedded value will help establish the market valuation of LIC and determine how much money the government raises in the flotation. That will be crucial to the government to help meet its divestment targets and keep its fiscal deficit in check
New Dlhi:
State-run Life Insurance Corporation of India’s (LIC) embedded value has been finalised at more than Rs 5 trillion(($66.82 billion), said Tuhin Kanta Pandey, secretary, department of divestment, who is overseeing what is expected to be the country’s largest IPO, said on Thursday.
“I would say the embedded value could be more than Rs 5 trillion and the enterprise value will be multiples of that,” Pandey told Reuters in an interview.
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. Under the embedded value method, insurance companies’ present value of future profit is also included in their present net asset value (NAV).
Investors are eagerly waiting for the government to indicate LIC’s embedded value – a measure of future cash flows in life insurance companies and the key financial gauge for insurers – when it releases the initial public offering (IPO) draft prospectus, expected in a matter of days.
While there has been speculation about the number in Indian media – from as low as $53 billion to as high as $150 billion – this is the first time the government, which owns 100% of LIC, is commenting on the matter.
The embedded value will help establish the market valuation of LIC and determine how much money the government raises in the flotation. That will be crucial to the government to help meet its divestment targets and keep its fiscal deficit in check.
Media reports in India have projected LIC’s market valuation at around four times the embedded value.
LIC has a majority share of the life insurance market in India. The government, which hopes to raise as much as $12 billion from selling a stake in the IPO, expects the proceeds will help it bridge a deficit gap this fiscal year.
Pandey said the government planned to issue a draft IPO prospectus to investors as early as next week.
Government is likely to file draft papers for the mega initial public offering (IPO) of LIC with market regulator Securities and Exchange Board of India (SEBI) by next week, while a portion of the issue would be reserved for anchor investors, Pandey said.
Pandey, further revealed that approval of the insurance regulator is awaited, post which the draft prospectus, detailing the size of the share sale, will be filed.
“Within seven to 10 days, the DRHP (Draft Red Herring Prospectus) for LIC IPO will be filed. Informally, we have been consulting SEBI on various issues. The size of the issue would be mentioned in the DRHP,” he said.
The government aims to come out with the IPO and subsequently list LIC on the bourses by March, he said.
The issue, after approval of SEBI, is likely to hit the market in March, he said.
LIC’s listing is crucial for the government to meet the lowered revenue estimates of ₹ 78,000 crore for the current fiscal.
The government has so far raised about ₹ 12,000 crore from privatisation of Air India and stake sale in other PSUs.
Finance Minister Nirmala Sitharaman in her 2022-23 Budget speech had said: “The public issue of the LIC is expected shortly.” Mr Pandey said the embedded value of LIC has been arrived at and it has to now get clearance from insurance regulator IRDAI.
“A portion of the IPO would be reserved for anchor investors like we have done in case of IPOs of IRFC and RailTel,” Mr Pandey added.
Up to 10 per cent of the LIC IPO issue size would be reserved for policyholders.
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.
The government is also mulling allowing foreign investors to pick up stake in LIC. As per Sebi rules, foreign portfolio investors (FPI) are permitted to buy shares in a public offer.
With inputs from Reuters