LIC’s big listing is happening

will they? won’t they? when will they? these were the three biggest questions on the minds of equity investors since January. the ‘they’ here is the Life Insurance Corporation of India (LIC). and the event being discussed is LIC’s listing. a year's wait and multiple delays later, LIC is all set to go public. 

the finance ministry had originally planned to list LIC in FY22. the process took time considering the size of the insurer and getting the valuation right. by February 2022, the IPO was ready to hit the market, but another postponement was in sight when Russia attacked Ukraine. 

now, after weeks of delay, the IPO is finally happening. the offer opened on May 4 and closes on May 9. 

so, what’s at stake? A lot, if you ask us. the government is pinning hopes on the LIC divestment for meeting its divestment target. policyholders are eyeing a stake in the life insurer by way of listing. the equity market is getting a new ray of hope with the LIC IPO after a long lull. 

the IPO is such a big deal, simply because of the sheer size of the insurance behemoth. 

based on LIC’s offer documents filed with Sebi, let’s look at the key numbers:

Rs 21,000 crore: the amount that the Indian government is looking to earn through their stake sale in the LIC. the government is likely to offload 3.5% of its 100% shareholding in the insurer, making it India’s biggest IPO so far. 

52.42 million: that’s the number of life insurance policies that LIC sold in FY21. this was a sharp decline from the 62.43 million sold in FY20, with the pandemic playing spoilsport to policy sales. 

Rs 2,857,299.55 million: that’s the total insurance premium that LIC collected in the nine months ended on December 31, 2021. these include endowment plans, pension plans, term plans, as well as ULIPs. 

Rs 293,107.37 million: that’s the total amount that the LIC paid for death claims in the nine months ended on December 31, 2021. there was a sudden surge in deaths because of the second wave of the Coronavirus pandemic. 

Rs 8,785.65 million: that’s how much LIC had invested into the stock market as of December 31, 2021. however, the market value of these equity investments was Rs 2,009.64 million, meaning that the insurer lost money in stocks. 

1.32 million: the number of insurance agents working for LIC as of December 31. of this, about 1.04 agents were ‘active’, meaning that they sold at least one policy in the previous 12 months.  

Rs 71,032.65 million: the commission paid to LIC agents for policy sales as of December 31. this meant about 20.6% of the first year premium collected was paid out as commission to these distributors. 

Rs 902-949: that’s the price band per share for LIC’s IPO. the government is offering a Rs 60 discount for policyholders and Rs 45 discount for LIC employees applying for public issue. 

Rs 40 trillion: that’s the size of LIC’s balance sheet. just to put this number in context, the assets under management of the entire mutual fund industry combined are Rs 38 trillion. 

Rs 4,001 crore: about 99 mutual funds pumped this amount into LIC’s anchor book ahead of the IPO opening for retail investors. the MFs bought the shares at Rs 949, which is the upper end of the price band. 

now, what’s next?

once the IPO is subscribed, the LIC stock is likely to be listed on BSE and NSE on May 17. while the IPO bid opened on May 4, the policyholder portion was fully subscribed in just a few hours.  

but, it’s important to remember that not everyone who applies will be allotted shares. typically, the IPO registrar takes seven days to inform participants whether their bid was successful or not. equity investors choose to invest in IPO purely for listing gains.

it’s a win-win for policyholders

for the 300 million LIC policyholders, listing is good news. going public will promote a higher transparency since Sebi requirements mandate detailed disclosures on all business decisions. any tweaks in the existing investment policies would have to be publicly communicated. this will be crucial for policyholders, considering that the life insurer invests out of the funds collected from policy sales. 

policyholders’ concerns about LIC’s future ability to pay claims have been resolved too. LIC is the only insurer whose policies are backed by the government. in other words, the central government guarantees that your money is safe. the finance ministry has assured that the sovereign guarantee will continue even post listing. 

it’s been a two-year wait after the 2020 budget announcement for an LIC IPO. the size may have been reduced from the earlier Rs 65,000 crore, but a smaller IPO now is better than another postponement. LIC, which was considered the white knight of disinvestment for years, is finally up next.