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LIC IPO: Why It’s A Crucial Moment For The Market3 min read

February 28, 2022
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LIC IPO: Why It’s A Crucial Moment For The Market3 min read

The Indian stock market has seen a flurry of initial public offerings (IPOs) in the past year. However, the public offering of Life Insurance Corporation of India (LIC) has generated the most excitement, and for the right reasons.

The much-awaited IPO of India’s largest insurer is expected to be the biggest public offering in Indian history. 

According to the draft red herring prospectus (DRHP) filed by LIC ahead of its listing, it is also the fifth-largest life insurance company in the world. 

The company’s embedded value is Rs 5.39 lakh crore as of September 30, 2021, according to the DRHP. 

1. How it started

Before the IPO takes place this month, take a look at the company’s 66-year history.

LIC was formed in September 1956, after the Parliament passed the Life Insurance Corporation Act in June 1956 and nationalised the insurance sector. 245 private life insurance companies were merged to form the behemoth, with the Union Government making a capital contribution of Rs 5 crore.  

LIC’s slogan – Yogakshemam Vahamyaham – is taken from a passage in the Bhagvad Gita. 

According to the LIC’s official website, it was created with “the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.

Since then, LIC has become a household name and currently has 29 crore policyholders. 

Today, LIC has a massive network of offices, with eight zonal offices, 113 divisional offices, 74 customer zones, 2,048 branch offices and 1,546 satellite offices. 

2. What you need to know about the IPO

The government will sell 5% of its stake in LIC, by putting up 31.6 crore shares on offer. At present, the government owns 100% of the company. 

In its DRHP, LIC said it will reserve up to 10% of the total shares on offer for policyholders, but did not specify the allotment and quantum of discount. 

“The aggregate of reservations for eligible policyholder(s) shall not exceed 10% of the offer size,” the DRHP stated. 

5% of the public offer will be reserved for employees, and 35% for retail investors. 

3. Why it’s an important moment for the market

Due to its massive size, it’s only natural that retail investors will be eagerly awaiting this IPO. 

LIC has a 64.1% market share in terms of premium and a 66.2% market share in terms of new business premium, according to the DRHP.

SBI Life Insurance, HDFC Life Insurance and ICICI Prudential Life Insurance are the only other listed life insurance companies. 

The IPO is also crucial for the economy, since the proceeds are expected to help the government meet its disinvestment target of Rs 78,000 crore for FY22.

Needless to say, this is a significant milestone for the stock market and the economy. 

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