The Ministry of Finance will discuss with market regulator Sebi to exempt LIC from the minimum public shareholding standard, DIPAM Secretary Tuhin Kanta Pandey said on Friday. According to Sebi’s Minimum Public Ownership Standards, listed entities with a valuation of more than one lakh crore must have at least 25% public ownership within 5 years of listing. The government last year exempted public sector entities from this standard.
The government is selling over 22.13 crores of LIC shares at a price range of Rs 902-949 each under the initial public offering, which opens on May 4 and closes on May 9. LIC would start trading on the exchange on May 17. The government plans to raise around Rs 21,000 crore from LIC IPO, which values the state insurer at Rs 6 lakh crore.
Briefing reporters ahead of the mega LIC’s IPO, Pandey said the government would not dilute its stake in Life Insurance Corporation within a year of listing. “To move the roadmap forward for a very big player like LIC, we will have to discuss with Sebi and the Ministry of Economic Affairs about a good kind of roadmap for minimum public participation. We know this is not not easy. Even 5% at this point won’t be acceptable to the market,” Pandey said.
According to Securities and Exchange Board of India (SEBI) standards, companies with a valuation above Rs 1 lakh crore must sell a minimum stake of 5% in the IPO. However, LIC has been exempted from this directive.
“We had to seek special dispensation from Sebi to relax the 3.5% dilution of the stake. The reason for this was that a very large company was entering the arena. We also had to be aware of the impact this has on the general capital market effect,” Pandey added.
Speaking at the event, Financial Services Secretary Sanjay Malhotra said the intrinsic value of new businesses is low and they have greater growth potential. Electric vehicle growth potential is less for older companies like LIC, he said while clarifying the perceived low valuation of the country’s largest insurer. The intrinsic value of LIC, which is a measure of the consolidated shareholder value of an insurance company, was pegged at around Rs 5.4 lakh crore as of September 30, 2021 by international actuarial firm Milliman Advisors.
Based on investor feedback, the market value of the government-owned LIC has been set at 1.1 times its intrinsic value or Rs 6 lakh crore. “The standards are not there for exceptional cases like the LIC. Despite a huge reduction to 3.5% (instead of 5%), it (IPO) is still the most important. The standards only take care of normal. The LIC is not normal,” Malhotra said.
First post: STI