The Finance Ministry will discuss with market regulator Sebi to exempt LIC from the minimum public shareholding norm, DIPAM Secretary Tuhin Kanta Pandey said on Friday. Under the Sebi's minimum public shareholding norms, listed entities with a valuation of over one lakh crore need to have at least 25 percent public shareholding within 5 years of listing. The government had last year exempted public sector entities from this norm.
The government is selling over 22.13 crore shares in LIC at a price band of Rs 902-949 apiece in the initial public offering, which opens on May 4 and closes on May 9. LIC would start trading on stock exchanges on May 17. The government expects to raise around Rs 21,000 crore from LIC IPO, which values the state-owned insurer at Rs 6 lakh crore.
Briefing reporters ahead of mega LIC IPO, Pandey said the government will not dilute its stake in Life Insurance Corporation within one year of listing. "Going forward the roadmap for a very large player like LIC we will have to discuss with Sebi and Department of Economic Affairs for a right kind of roadmap for minimum public shareholding. We know it's not easy. Even 5 percent at this point of time would not be acceptable to the market," Pandey said.
As per the Securities and Exchange Board of India (SEBI) norms, companies with a valuation of over Rs 1 lakh crore have to sell a minimum 5 percent stake in IPO. However, LIC has been exempted from this guideline.
"We had to seek special Sebi dispensation for relaxation for 3.5 percent stake dilution. The reason for this was a very large corporate was entering the arena. We also had to be mindful of how it impacts the capital market in general. There was crowding out effect," Pandey added.
Speaking at the event, Financial Services Secretary Sanjay Malhotra said that the embedded value of new companies is small, and they have larger growth potential. The EV growth potential is less for older companies like LIC, he said while clarifying the perceived low valuation of the country's largest insurer. LIC's embedded value, which is a measure of the consolidated shareholders' value in an insurance company, was pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.
Based on investor feedback, the market value of government-owned LIC has been pegged at 1.1 times its embedded value or Rs 6 lakh crore. "Norms are not there for exceptional cases like LIC. Despite a huge reduction to 3.5 percent (from 5 percent), it (IPO) is still the largest. Norms take care of only the normal. LIC is not normal," Malhotra said.