Share Dilution

Minimum 3.5% stake dilution approved by the Board of Directors via IPO, possibility to increase the limit to 5% depending on market conditions

The board of India’s Life Insurance Corporation (LIC) has reportedly agreed to dilute the 3.5% stake in the country’s largest insurer, even though it maintains the 5% stake dilution as the limit on the upside, as indicated in the draft red herring prospectus.

A senior official with knowledge of the development, the board at a meeting on Saturday decided to cut the stake for dilution, which will be subject to regulatory approvals, amid headwinds from volatile stock markets and interest investors, although this could dilute up to 5% ownership as stated in the prospectus.

“The 5% limit is still on the table. Based on current demand, the markets can support around 3.5%, but if that changes, we can easily increase it to 5%,” the official said, asking not to be named as the procedure is not in the public domain.

The government seeks to bring together 21,000- 30,000 crore from the sale, at a valuation of 6 trillion, the official added.

While the IPO is expected to hit the markets in the first week of May, reservations, discounts and issue price will be determined by Wednesday morning. The requests addressed to the Ministry of Finance did not obtain a response on Saturday evening.

The biggest upcoming IPO on Indian stock exchanges will therefore take place well before its May 12 deadline after which it will have to re-file the DRHP with the March quarter results.

Tuhin Kanta Pandey, Secretary of the Department of Investment and Public Assets Management (Dipam), said last month at the Mint India Investment Summit 2022 that there was strong investor interest in the offering of the public company, but the Center will proceed with the IPO only when it is sure of a successful IPO of the insurer.

The success of LIC’s IPO is crucial for the government to meet its asset sale target, which has been reduced to a modest Target of 65,000 crores for the current fiscal year, lower than the revised target 78,000 crore for the previous financial year. The government could hit less than 17% of the revised asset sale target for FY22 due to the Russian invasion of Ukraine, and the resulting volatility in stock markets has forced it to postpone the sale of LIC shares to this financial year.

However, delaying the IPO beyond May 12 will mean delaying the IPO by two to three months.

Mint reported earlier this week that the nation’s largest insurer had an outstanding performance with first-year premium collection, a key metric, rising 7.9% to 1.98 trillion for the year ended March 31, with a market share of 63.25%, lower than the previous year. However, in March, the company’s high-end collections grew 51% to 42,319.22 crores over the previous year, achieving a market share of 71%. LIC sold 21.7 million insurance policies in the year ended March 31, 3.54% more than the previous year, increasing its market share to 74.6% in terms of policies sold.

The mega IPO has drawn considerable interest from at least 12 major foreign and domestic fund management firms, Mint reported last week. At least five of India’s leading asset management companies, at least three major foreign sovereign wealth funds, two global pension fund management companies and two global hedge funds have pledged to invest 18,000 crores to bankers managing LIC’s IPO, according to the report. Mint had also reported that domestic mutual funds are likely to invest 7,000 to 8,000 crores as lead investors.

To subscribe to Mint Bulletins

* Enter a valid email

* Thank you for subscribing to our newsletter.