Public listing of Life Insurance Corporation of India on cards; dilution to happen with sale of small tranche, says report

  • The process is in the early stage and has been discussed within the government, sources were quoted as saying in media reports

  • If the IPO takes place, LIC could overtake current leaders Reliance Industries Ltd and Tata Consultancy Services

  • LIC is India's largest financial institution

The Narendra Modi government is mulling over the public listing of India's largest financial institution Life Insurance Corporation of India. LIC holds two-thirds share of India's life insurance market

The process is in the early stage and has been discussed within the government, sources were quoted as saying in media reports.

The Department of Investment and Public Asset Management (DIPAM) and DFS are exploring the pros and cons of listing the insurance company. “Listing of LIC is among the long-term reforms agenda of the Modi government,” ETNow said, quoting sources, according to The Economic Times.

The dilution is likely to happen with the sale of a small tranche through an IPO, followed by a further reduction in the government’s holdings, according to a report in The Indian Express.

If the LIC shares are listed on stock exchanges, the report said, it could easily emerge as the country’s top listed company in terms of market valuation. LIC could overtake current leaders Reliance Industries Ltd and Tata Consultancy Services.

On a capital base of Rs 5 crore, LIC last reported a valuation surplus — or profit — of Rs 48,436 crore for FY2018 and assets under management of Rs 31.11 lakh crore, the report said.

 Public listing of Life Insurance Corporation of India on cards; dilution to happen with sale of small tranche, says report

An exterior view of Life Insurance Corporation of India's (LIC) headquarters in Mumbai. Reuters

The first round of IPO will likely fetch a huge premium due to LIC's small equity base.

The government had listed the shares of General Insurance Corporation and New India Assurance through IPOs two years ago. It will have to amend the LIC Act first before taking the Corporation public, the report said.

Listing a company is believed to make the accounts more transparent with disclosures of investments and loan portfolios, leading to better corporate governance.  The government had previously listed the shares of General Insurance Corporation and New India Assurance through IPOs two years back.

In 2016,  former Union Finance Minister had said, "If LIC is listed, it would be the most valued company in the country with the highest valuation as well as one of the largest across the world," according to PTI. LIC is one of the few profitable Union Government enterprises that is still not a publicly-traded entity.

In 2017, state-owned New India Assurance Company and General Insurance Corporation of India were listed on the bourses and exchequer earned money out of stake sale.

In Budget 2018-19, the government had proposed to merge National Insurance Company, Oriental Insurance Company and United India Insurance Company.

The Centre in the Budget had announced that the three companies would be merged into a single insurance entity.

The process of merger could not be completed due to various reasons, including the poor financial health of these companies.

The two of these public sector companies are struggling to maintain the solvency ratio. As against the insurance regulator Insurance Regulatory and Development Authority’s (IRDA) solvency ratio norm of 1.5, National Insurance has an insolvency ratio of 1.5, while United India’s level is comparatively lower at 1.21.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Updated Date: Jul 30, 2019 09:25:37 IST