CCEA clears LIC disinvestment; panel headed by finance minister to decide quantum of stake sale

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The cabinet has approved an initial public offering of India’s largest insurer LIC, the modalities of which such as issue size, pricing and timing would be decided by a panel headed by Finance Minister Nirmala Sitharaman.

The department of investment and public asset management (DIPAM) had in January appointed actuarial firm Milliman Advisors LLP India to assess the embedded value of LIC ahead of the IPO (Initial Public Offering), which is touted to be the biggest public issue in Indian corporate history.

The budget amendments to the LIC Act have been notified and the actuarial firm is expected to finalise the embedded value of the life insurer. Under the embedded value method, the insurance company’s present value of future profit is also included in its present net asset value.

“The cabinet committee for economic affairs last week cleared the proposal of an initial public offering of LIC. The alternative mechanism on disinvestment will now decide on the quantum of stake to be divested by the government,” a senior official said on July 12, 2021.

The government expects to come out with the LIC IPO by the end of the current fiscal, the official added.

Up to 10% of the LIC IPO issue size would be reserved for policyholders.

The government has already brought in the required legislative amendments in the LIC Act for the proposed IPO.

Deloitte and SBI Caps have been appointed as pre-IPO transaction advisors.

Government’s disinvestment target

The listing of LIC will be crucial for the government to meet its disinvestment target. The government aims to mop up Rs 1.75 lakh crore in the current fiscal from minority stake sales and privatization.

Of the Rs 1.75 lakh crore, Rs 1 lakh crore is to come from selling the government’s stakes in public sector banks and financial institutions. The remaining Rs 75,000 crore would come as CPSE disinvestment receipts.

So far in the current fiscal, the government has mopped up Rs 3,994 crore from the sale of SUUTI stake in Axis Bank. Besides, around Rs 3,700 crore has come in from the share sale in NMDC.

In her Budget speech in February this year, Sitharaman said the IPO of LIC would be floated in 2021-22.

Besides, IDBI Bank would be privatised in the current fiscal.

As part of the privatisation strategy, the government aims to complete the strategic sale of Bharat Petroleum Corporation Ltd (BPCL), Shipping Corp, Container Corporation, Neelachal Ispat Nigam Ltd, Pawan Hans, and Air India, among others, by March 2022.