LIC IPO may offer 10% discount to employees under special quota

Govt to pitch for amendments in the LIC Act in the Monsoon session starting September 14

Long-term employees of the Life Insurance Corporation (LIC) could benefit significantly from the proposed initial public offering (IPO) of the state-owned insurer. Sources in the government said that the divestment process will have the special quota where they could buy the shares at the 10 per cent discount. 

The development assumes significance since the government is expecting huge demand for the public issue. So, if an employee bids through the retail quota, his chances of getting allotment will be lower. LIC had a total 110,000 employees as of March 2019.  

However, the final decision on the allotment of shares and discount will be finalised by a group of ministers, once the cabinet approves the final draft of the stake sale. “The government is considering a discount to employees of up to 10 per cent in the during the divestment process along with bonus in the initial days,” said a person privy to the plan. 

The department of financial services under the finance ministry has sought inputs and comments from all the financial regulators on the draft note for stake sale in the LIC. 

Sources say that it will be finalised by the end of this month. “The draft note has been shared with the Securities and Exchange Board of India, Reserve Bank of India, IRDAI and others and they have been given 15 days to respond," said a person familiar with the matter, who added that the centre is expecting to file the draft paper by end of the calendar year. 

Other than the incentives, the draft said the government will cut its stake to 75 per cent from the existing 100 per cent in the insurer. However, this would be done in one or more than one tranches in line with Sebi’s regulation. According to it, minimum shareholding should be at least 25 per cent within three years of listing, another source explained. 

The same draft also proposed six amendments in the LIC Act, 1956 including the section which explains that LIC is a statutory body which needs to be redefined as a company under the provisions of Companies Act. Other sections which require amendment deals with board composition and its restructuring, profit sharing with shareholders, dividend distribution, issued capital, expansion of paid up capital and reserve funds. 

“The IPO couldn't be possible without certain legal amendments. For instance, it will help expand the capital base which currently stood at Rs 100 crore.  Before 2011, the capital of the corporation was Rs 5 crore, which was expanded after the amendment made in LIC Act was passed. 

The department of investment and public Asset Management (Dipam) has appointed Deloitte and SBI Capital as transaction advisors for the IPO. The valuation is yet to be known as it will depend on factors like the assets and liabilities and also the products. LIC has roughly 31 trillion total assets of which contribution from policy is 25 per cent and premium is 67 per cent. 

Sources say that the government is planning to pitch for the amendment in the upcoming monsoon session of Parliament as a Money Bill, which only requires a nod from Lok Sabha. 

LIC stake sale on the cards 

• Incentivise the participation of employees, retail investors 
• For LIC employees upto 10 shares may be reserved 
• For retail investors, 5 % discount could be given 
• Govt to offload stake to 75 % in 1-2 tranches 
• Proposes six amendment in the LIC Act, to facilitate IPO
• To convert statutory body into company under Companies Act