Getting IPO-ready: LIC boosts shareholders' corpus to Rs 6,600 crore

The move is to ensure a much larger shareholder base ahead of IPO

Life Insurance Corporation of India (LIC) has increased the size of its shareholders’ fund to Rs 6,600 crore from Rs 100 crore in a bid to accommodate a larger shareholder base ahead of its public listing.

The size of the fund has been enhanced by retaining two years' of dividend and issuing fresh capital, said an official. Increasing the size of the shareholders’ fund will help boost the number of shares for allotment in the insurer’s initial public offering (IPO).

The corpus represents the amount of equity in a company that belongs to its shareholders. In the Union Budget, the Centre had increased the authorised share capital of LIC to Rs 25,000 crore, divided into 25 billion shares of a face value of Rs 10 each. It also empowered LIC to “consolidate or reduce the nominal or face value of the shares, divide the authorised share capital into equity share capital or a combination of equity and preference share capital, and divide the nominal or face value of shares", with approval from the Centre. Besides, it empowered LIC to issue equity shares to the central government in consideration for the paid-up equity capital provided to the insurer.

The insurer has been in discussions to reduce the face value of a share to Rs 1, said another official. This would imply that with equity capital increasing to Rs 6,600 crore, the number of LIC shares would increase to 66 billion. The Centre owns the entire 6.32 billion shares in the insurer, according to the latest disclosure of the insurer’s shareholding pattern (December 31, 2021). This means that the total paid-up capital of LIC could be Rs 6,324 crore as of December 31 at a face value of Rs 10 a share.

Changes to the LIC Act allows the insurer to increase the shareholder base by the splitting of shares, noted Ankur Wahal, senior vice-president at BOB Capital Markets. Total shares issued by LIC could go up to 250 billion of face value Rs 1 each, in line with the valuation expectations of the government, he said.

Separately, the embedded value of India’s largest insurer has been finalised by government-appointed actuary Milliman Advisors to over Rs 5 trillion, and soon the same will be shared with the Insurance and Regulatory Authority of India (IRDAI). Based on back-of-the-envelope calculations, if the value of the insurer is 2.5 times its EV, the valuation of LIC will be around Rs 12.5 trillion. This may lead to shares of LIC being valued at aroundRs 180-200 a piece.   

A valuation of two times of EV may mean shares being valued at Rs 150-170 a piece. The calculation has been done assuming the face value of a share at Rs 1, as the insurer and the government have been deliberating to reduce the face value from Rs 10.

The government also has the option to split shares in denominations of Rs 10, Rs 5, Rs 2, and Rs 1, depending on the price band it wants to set for the shares of LIC, depending on how lucrative it wants to price the shares of LIC for policyholders and retail investors.

The Centre plans to list LIC, considered to be India’s largest public offering, in the current financial year. Last week, the Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey told Business Standard the government is looking to file the draft red herring prospectus (DRHP) for LIC in early February. The insurer has done a fund bifurcation, creating participating and non-participating funds. The reporting actuary, Milliman Advisors, is close to finalising the embedded value report, which will soon be shared with Irdai, Pandey said.