LIC IPO

Introduction

The Life Insurance Corporation of India or LIC India is an insurance group owned by the Government of India. Founded on September 1, 1956, LIC was made from a merger of over 245 insurance companies and provident societies.

As of 2019 LIC has a revenue of 3.37 lakh crores, net income of 29.9 thousand crores and total assets of ₹31.12 lakh crores.

In the year 1818, Oriental Life Insurance Company became the first life insurance company of India. The Company was started by Europeans in Calcutta with the motive to look after the needs of Europeans in India. At that time, the lives of the native Indians were not insured.

This lead to the formation of Indian Insurance companies like Hindustan Insurance Society (which later became Life Insurance Corporation) founded by Surendranath Tagore. The Bombay Mutual Life Assurance Society, became the first insurance provider for the natives of India, in the year 1870.

The Parliament of India passed the Life Insurance of India Act on June 19, 1956, and created the Life Insurance Corporation of India.

Subsidiaries of LIC:

  • IDBI Bank (Listed Subsidiary)
  • LIC Housing Finance (Listed Subsidiary)
  • Lic Pension Fund Ltd
  • Lic International
  • Lic Cards Services
  • Lic Mutual Fund

As of March 2019, LIC has a workforce of 111979 employees.

Importance of LIC

  • Market share of LIC: In the year 1991, economic reforms were introduced in India. These economic reforms introduced liberalization and globalization in India. It was the year 2000, with the entry of insurers such as New York Life Insurance Co. and Prudential Plc, LIC had to give up its monopoly of 44 years.As of (2018-2019) LIC holds a giant 66.24% insurance market share by premium. It is the leading insurer of India.
  • Impact of LIC on the stock market: When the news of LIC IPO was announced by the Government of India, stock prices of Insurance peers: SBI Life InsuranceGeneral Insurance Corp. of IndiaHDFC Life Insurance Co. and ICICI Prudential Life Insurance Co.; slumped around 6% to 14%.It is undeniable that LIC is a huge company. The fact that it holds a stake in so many companies is enough to prove its magnitude.Companies LIC holds a stake in:
CompanyHolding in %
ADANIPORTS2.55
ASIANPAINT2.92
AXISBANK10.37
BAJAJ-AUTO4.6
BAJAJFINSV2.16
BPCL5.55
CIPLA3.49
DRREDDY3.91
GAIL4.99
GRASIM10.78
HDFCBANK2.52
HEROMOTOCO5.54
HINDPETRO3.74
HDFC3.73
ITC16.32
ICICIBANK10.37
IBULHSGFIN10.78
IOC6.51
INFY5.85
KOTAKBANK1.95
LT16.92
LUPIN2.42
MARUTI6.8
NTPC10.83
ONGC9.48
POWERGRID4.89
RELIANCE6.78
SBIN9.25
SUNPHARMA5.88
TCS3.98
TATASTEEL9
UPL4.17
VEDL6.39
WIPRO4.81

With stakes in companies like Adani Ports, Asian Paints, Axis Bank, HDFC bank, Infosys L&T,     Maruti, Reliance, Tata Consultancy Services etc. LICs assets total up to ₹31.12 lakh crores.

  • Help to the Government: LIC has always acted as a helping hand to the government. It has invested in PSUs that no one was buying. Since 2007 (till 2016), the Indian Government has raised an amount of 1.39 lakh crores through disinvestment, out of which total stake bought by LIC was 55 thousand crore. Out of 43 issues between 2007-2016, LIC invested in 29 issues.
YearState-owned company LIC invested in
2010REC, NMDC and NTPC
2014Coal India
2016Indian Oil
2017GIC
2018Hindustan Aeronautics

In the year 2010, LIC shelled out 11,500 crores to buy shares of three PSUs REC, NMDC and NTPC. LIC invested an amount of 10.7 lakh crore between FY14-15 and FY 18-19 in PSUs that included many ailing banks. Currently, LIC owns a stake in 21 state-owned banks, out of which 11 are under RBI monitored clean up.

LIC’s Contribution to the five year plans over the years
PlanYearInvestment
21956-1961₹184 Cr
31961-1966₹285 Cr
41969-1974₹1,530 Cr
51974-1979₹2,942 Cr
61980-1985₹7,140 Cr
71985-1990₹12,969 Cr
81992-1997₹56,097 Cr
91997-2002₹1,70,929 Cr
102002-2007₹3,94,779 Cr
112007-2012₹7,04,720 Cr
122012-2017₹14,23,055 Cr
132017-2022₹28,01,483 Cr

LIC has often acted as an investor of last resort. It has supported many state-owned companies by buying securities.

LIC IPO Details

Expected Size: According to a government official it is unlikely that the LIC IPO will be more than 10%. To get an accurate number for the issue size, valuation report is to be prepared. The government has a disinvestment plan of 2.10 lakh crores and hopes to amass an amount of Rs. 70,000 Crores through LIC IPO.

Expected Date: According to the government, LIC IPO is likelyto happen in the second half of FY21. The issue with this date is the size of LIC. When SBI Life put out an IPO, it took them 9 to 12 months to prepare the valuation report and get approvals. With LIC, these processes are going to take much more time, making the FY21 target, a race against time.

Difficulties: Before the LIC IPO happens, a lot of changes and amendments need to take place. There is a list of problems that need to be dealt with:

  1. LIC Act 1956: Before the IPO becomes a reality, amendments must be made to the LIC act of 1956. This is the very act that nationalized LIC. The act must be amended so that LIC is turned into a company. This is one of the major problems in the case of LIC.
  2. IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous, statutory body which regulates and promotes the insurance industry in India. While LIC may have its own rules and regulations, it is a part of the insurance industry and hence will need approvals from IRDAI before its IPO.
  3. Protests: Following finance minister Nirmala Sitharaman’s announcement in her Budget 2020 speech, nearly 1 lakh employees of LIC staged an hour-long walk-out against the government’s decision to disinvest a part of its stake through an IPO.
  4. SEBI: After all of the above problems are dealt with, LIC will further need a nod of approval from SEBI.

Peer Comparison

Other Life insurance IPOs:

  • HDFC Life IPO – ₹8,695.01 Cr
  • SBI Life Insurance IPO – ₹8,400.00 Cr
  • ICICI Prudential Life IPO – ₹6,056.79 Cr
  • General Insurance Corporation of India IPO – ₹11,175.84 Cr

Largest IPOs of all time (India):

  • Coal India Ltd – ₹15,000 crore
  • Reliance Power – ₹11,560 crore
  • General Insurance Corporation of India – ₹11,175.84 Cr
  • ONGC – ₹9,500 crore
  • DLF- ₹9,187.50 crore

Largest IPOs of all time (Globally):

  • Saudi Aramco – $29.4B
  • The Alibaba Group – $25B
  • SoftBank Group – $23.5B
  • Agricultural Bank of China – $22.1B
  • Industrial and Commercial Bank of China – $21.9B
  • American International Assurance – $20.5B
  • Visa Inc. – $19.7B
  • General Motors – $18.15B
  • NTT DoCoMo – $18.05B
  • Enel – $16.59B
  • Facebook – $16.01B
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