The Finance Ministry will discuss with market regulator Securities and Exchange Board of India (SEBI) to exempt Life Insurance Corporation (LIC) from the minimum public shareholding norm, Department of Investment and Public Asset Management (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 per cent 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, Mr 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 per cent at this point of time would not be acceptable to the market,” Mr Pandey said.
As per SEBI norms, companies with a valuation of over Rs 1 lakh crore have to sell a minimum 5 per cent stake in IPO. However, LIC has been exempted from this guideline.
“We had to seek special SEBI dispensation for relaxation for 3.5 per cent 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,” Mr Pandey added.
Financial Services Secretary Sanjay Malhotra said, “…norms are not there for exceptional cases like LIC. Despite a huge reduction to 3.5 per cent (from 5 per cent), it (IPO) is still the largest. Norms take care of only the normal. LIC is not normal.”
Speaking at the event, Mr Malhotra said that the embedded value of new companies is small, and they have a larger growth potential.
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. “LIC is coming at a time… It is a very mature organisation. Normally Corporations grow with IPO, but here we have a full-blown and mature organisation. It not only gives an opportunity to reorient and reinvest itself, but it also gives a huge opportunity to investors.
“Policyholders have been given special dispensation… We have offered the highest discount to policyholders considering their role in creating value in LIC,” Mr Pandey said.
While retail investors and LIC employees will get a discount of Rs 45 per share, LIC policyholders bidding in IPO would get a discount of Rs 60 a share.
When asked about possible Chinese investment in LIC IPO, Mr Pandey said the anchor book will be known on May 2 and foreign investment in the corporation will be as per the DPIIT guidelines.