LIC IPO: Cabinet Approves FDI up to 20% Under Automatic Route in LIC

LIC IPO: The Cabinet has approved amendment to permit for FDI in the Life Insurance Corporation of India (LIC), CNBC-TV18 learnt from government sources on Saturday. The move will facilitate foreign funds to participate in the upcoming IPO of the state-owned insurance behemoth.

“The FDI reform will facilitate foreign investment in LIC and other such corporate bodies, for which the government may have a requirement for disinvestment purposes,” the sources told CNBC-TV18.

As per the current FDI policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT), foreign investment is allowed in “insurance companies” and “intermediaries or Insurance Intermediary”. Since LIC is neither a company nor an intermediary, it is not covered by either. Further, no provision of FDI under either the LIC Act, 1956 or the Insurance Act, 1938 or the regulations has been made. Even the Insurance Regulatory and Development Authority Act, 1999 doesn’t have such provisions.

So, a special provision may be incorporated in the Consolidated FDI Policy for FDI in LIC, sources added. Since the FDI ceiling for public sector banks is 20 per cent under the approval route, a similar limit has been kept for FDI in LIC. However, the government has decided to keep FDI in LIC under the automatic route so that capital raising process may be expedited.

According to the amendment to the LIC Act through the Finance Act 2021, the government could dilute only a 25 per cent stake in the insurer in the first five years and the government equity won’t fall below 51 per cent at any point in time. So, 49 per cent public float in LIC is a long way to go as well as full utilisation of the FDI limit.

On February 13, LIC filed the draft red herring prospectus (DRHP) in which the government offered to sell a 5 per cent stake in LIC that could fetch it around Rs 70,000-80,000 crore (if it is valued three times of EV). The valuation of the insurer will be known when the IPO price range is indicated before the IPO.

LIC has reserved 50 per cent of the net offer (after excluding the portion reserved for policyholders and employees) for qualified institutional buyers or QIBs, 15 per cent for non-institutional bidders and 35 per cent for retail individual bidders in accordance with the Sebi regulations. Foreign institutional investors would come in the QIB category which includes domestic institutional investors also. Later, foreign investors could buy LIC shares from the secondary market.

In its meet today, the PM-chaired Cabinet has also simplified and enhanced the existing FDI policy, they added.

Sources informed that the reform will facilitate ease of doing business and lead to greater FDI inflows. It will also ensure alignment with the overall intent/ objective of the FDI policy at the same time, they added.