Unique features of LIC IPO: Policyholder quota, differential discount

Domestic capital market will see the launch of India’s largest-ever initial public offering (IPO) next week. Life Insurance Corporation of India’s (LIC’s) landmark Rs 21,000-crore IPO will open for subscription on Wednesday. Here’s a look at some unique features of this mega offering, which are not typically seen in other IPOs.

Special policyholder quota: In the past, IPOs have had special reservations for employees and shareholders of parent companies. LIC’s IPO will be the first to have a separate 10 per cent quota for policyholders. To be eligible to apply in the quota, policyholders should have bought their LIC policy before February 13, the day LIC filed its offer document with Sebi. Further, they are required to have completed other formalities such as linking their PAN. LIC Chairman MR Kumar said about 65 million PAN numbers are linked to policies. However, it remains to be seen how many of them have an active demat account to apply in the IPO. Some of the most successful IPOs of 2021 saw retail applications of between 10 million and 15 million.

Differential discount: It is a usual practice for the government to incentivise small shareholders during the disinvestment programmes.

However, in case of LIC, the government is offering extra discount to LIC’s policyholders applying in the IPO. For retail and employees, the discount being offered is Rs 45 per share, while policyholders are being offered a discount of Rs 60 per share.

If the issue is priced at Rs 949, the top-end of the price band, the discount works to 4.74 per cent for retail shareholders and 6.3 per cent for policyholders. Department of Investment and Public Asset Management (Dipam) Secretary Tuhin Kanta Pandey during a press conference on Wednesday said policyholders were the “pillars” and the parliamentary Act has a provision to give them reservation and discount. “Policyholders make this company and we invite them to be shareholders.”

Two applications: LIC’s IPO will allow one PAN card holder to submit two applications. Invest­ment bankers said a retail investor is allowed to submit a bid under the policyholder quota (if eligible) as well as under the normal retail or HNI quota. The move will increase chances of getting an allotment in case the IPO sees huge oversubscription.

Open for extended period: Most IPOs are open for a three-day period. However, LIC’s IPO will remain open between May 4 and May 9. Investment bankers said they were expecting huge number of retail applications in the IPO.

Processing retail applications is a challenging task for brokers and investment bankers as a result, the issue has been kept open for one extra working day. Some brokers said they will keep their systems open to allow investors to submit their bids even during weekends.

Lower dilution: In February 2021, Sebi allowed large companies to come out with an IPO with lower dilution. Under the formula prescribed by Sebi, a company had to compulsorily dilute Rs 10,000 crore, or 10 per cent, for market capitalisation of Rs 1 trillion and only 5 per cent for incremental market capitalisation. Using this formula, LIC would have had to come with an IPO of at least Rs 35,000 crore, 5.8 per cent dilution. However, this is a first time a company is launching an IPO with just 3.5 per cent dilution.