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fdi: Ahead of IPO, govt allows 20% FDI via automatic route in LIC


NEW DELHI: Ahead of the planned public issue, the government on Saturday allowed 20% foreign direct investment (FDI) in Life Insurance Corporation via the automatic route.
The move also signals that the government is keen to pursue the mega initial public offer of the insurance behemoth despite the choppy markets in the wake of Russia’s invasion of Ukraine.
While the government allows 74% FDI in the insurance sector, overseas investment was not allowed in LIC, which is governed by a special statute. Now the government has sought to bring parity in terms of allowing foreign flows before the IPO but has aligned the rules for those applicable to public sector banks.
The government is keen to complete the listing of LIC by the end of March as part of its efforts to bolster revenues and close the year with a fiscal deficit of 6.9% of GDP. Though the recent developments in Ukraine have brought in some uncertainty about the timing, the government and bankers for the issue are going ahead with the roadshows.
While a large portion of the issue is proposed to be earmarked for retail investors and policyholders, overseas investors too are expected to invest large amounts in LIC.
Government sources said that the Union Cabinet which met on Saturday also cleared a few other changes to the FDI regime as part of the efforts to simplify the mechanism and make it attractive for overseas investors to pump in money into the country.
The details of the amended regime will be notified over the next few days. The changes are meant “to provide greater clarity and updated, consistent and easily comprehensible FDI framework”, an official source said.
“The measures taken by the government with FDI policy reforms, investment facilitation and ease of doing business, have contributed to India attracting record FDI inflows in the recent past,” an official said.
FDI inflows hit a record high of $74.4 billion during the last financial year as mega deals involving Reliance Jio pushed up inflows. Latest data released by the commerce and industry ministry showed a 16% decline in FDI flows during April-December 2021 and were estimated at $43 billion, compared with $51.5 billion during the corresponding period of the previous year.





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Govt clears up to 20% FDI in LIC ahead of mega IPO


The government on Saturday cleared an amendment to allow up to 20 foreign direct investment (FDI) under the “automatic route” in Life Insurance Corporation. This comes ahead of the proposed initial public offer of LIC, which is expected to be the largest in the Indian capital markets so far.

The government expects to mobilise Rs 63,000-66,000 crore from the proposed share sale to meet its disinvestment target of Rs 78,000 crore for FY22, as per industry estimates. While LIC is yet to announce the IPO price, market estimates are that the IPO is likely to be Rs 2,000-2,100 per share.

The existing FDI Policy did not prescribe any specific provision for foreign investment in LIC, which is established under the LIC Act, 1956. The FDI ceiling for LIC has now been made at par with that of the public sector banks. While the government had last year raised the FDI limit in the insurance sector to 74 per cent from 49 per cent, it did not cover LIC that is covered by a specific legislation.

“Since as per the present FDI Policy, the FDI ceiling for public sector banks is 20% on government approval route, it has been decided to allow foreign investment up to 20% for LIC and such other bodies corporate. Further, in order to expedite the capital raising process, such FDI has been kept on the automatic route, as is in the case of rest of the insurance sector,” a government source said.

Foreign investors may be desirous of participating in the IPO of LIC, and this change would facilitate FDI in LIC and such other bodies corporate, for which government may have a requirement for disinvestment purposes, sources said.

On Friday, the National Stock Exchange decided to relax the eligibility criteria of Nifty equity indices and for replacement of stocks in various indices, reducing the minimum listing history of constituents from three months to one calendar month, effective from March 31. This relaxation is expected to pave the way for the inclusion of LIC, which plans to list its shares in March, in the benchmark Nifty 50 Index. Since many passive funds allocate investments to indices and index stocks, the move, along with FDI permission, would enable large inflows in the LIC IPO.

Once the Sebi approves the issue, the IPO is likely to open for subscription in the second week of March and trading will commence by the third week, industry sources said. The government is going ahead with the listing of the latter’s shares, despite increased volatility in the markets amid increasing global concerns.

Sources said the government expects this move, along with other simplifications in FDI policy, to “make India an attractive investment destination”. FDI inflows into India rose to $81.97 billion in 2020-21, from $ 74.39 billion in 2019-20. “The FDI policy reform will further enhance Ease of Doing Business in the country, leading to larger FDI inflows and thereby contributing to growth of investment, income and employment,” they said.

FDI in currently permitted sectors is allowed up to the limit indicated against each sector/activity subject to applicable laws/regulations. “Insurance” is a permitted sector under FDI policy rules, however, it currently lists only Insurance Company and “intermediaries or insurance intermediaries” under the “Insurance” sector. LIC being a statutory corporation, is not covered under either of these.

Further, no limit is prescribed presently for foreign investment in LIC under the LIC Act, 1956; the Insurance Act, 1938; the Insurance Regulatory and Development Authority Act, 1999 or regulations made under the respective Acts. Therefore, this amendment has been made to specifically allow 20% FDI in LIC.

In an interview with The Indian Express earlier this month, the Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said that 20 per cent FDI should be sufficient considering that existing regulations and the requirements.

“…because LIC is not an insurance company, so insurance laws strictly does not apply to it, except for some of the provisions of insurance, which are indicated in the LIC act itself. We have to retain 51 per cent by law. We cannot go below that. And even if we go for an IPO, we will be able to dilute only up to 25 per cent within the first five years. We can not go more than this as per the law. And then we have the law that no single person can own than 5 per cent. So 20% (FDI) is more than enough for us, if we go for that route,” he had said.

As of September 2021, LIC policyholders had total investments of Rs 39,49,516.37 crore on a standalone basis. This is more than 3.3 times higher than total assets under management (AUM) of all private life insurers in India and approximately 16.2 times more than the AUM of the second-largest player in the Indian life insurance industry in terms of AUM.

LIC held stocks worth a “carrying value” of Rs 9,79,843 crore (close to $130 billion), or 24.77 per cent of its total investments, as on September 30, 2021. The market valuation is LIC is expected to be more than Rs 10 lakh crore, putting it at par with top notch companies such as Reliance Industries and TCS.

The initial public offer of up to 31.62 crore equity shares comprises the net offer, employee reservation portion, and policyholder reservation portion. The IPO works out to 5 per cent of the total capital of 632.49 crore shares, with the government retaining the remaining 95 per cent.

A portion of shares, not exceeding 5 per cent of the offer, will be reserved for employees. Another portion not exceeding 10 per cent, will be reserved for eligible policyholders. Policyholders and employees are likely to get shares at a discount.

A minimum 35 per cent of the issue will be reserved for retail investors. The corporation may allocate up to 60 per cent of the QIB (qualified institutional buyers) portion to anchor investors on a discretionary basis. One-third of the anchor investor portion will be reserved for domestic mutual funds.





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Cabinet approves up to 20% FDI in behemoth insurer LIC: Source


NEW DELHI: The Cabinet approved on Saturday a policy amendment allowing foreign direct investment of up to 20% in Life Insurance Corp of India (LIC), a government source said, a change aimed at easing the listing of the state-run insurer.
India’s biggest insurance company plans to float a stake of 5% to raise about $8 billion next month for the south Asian nation’s largest initial public offering (IPO) by far.

The amendment would allow foreign direct investors to buy up to 20% of LIC’s shares through an automatic route, said the government source, who spoke on condition of anonymity after the cabinet meeting.
Under current rules, foreign investment is not allowed in the LIC, governed by the special parliament act, while 74% foreign direct investment is allowed in other private insurance companies.
The amendment would allow the government to raise the foreign direct investment limit in the LIC up to 20%, on par with the rule for state-run banks, the government source said.
The cabinet decision comes amid growing fears among some investors that the government could defer public listing of the LIC due to increasing volatility in the market after Russia‘s invasion of Ukraine.
Government officials, have however, said that there was no plan to defer the listing of the insurance company – critical for plans to raise funds for budgeted spending.
In the IPO, the firm will also earmark a certain percentage of shares for policyholders, not exceeding 10% of the offer size, while the portion reserved for employees will not be more than 5% of post-offer equity share capital, according to the IPO filing. LIC employed 114,498 people as of end-March, 2021.
LIC, which was formed six decades ago when India’s insurance sector was nationalised, straddles the business in the country, with more than 280 million policies and over 60% of the insurance segment.





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LIC IPO: Govt may not need to amend any law to permit foreign participation



The government may not be required to amend any legislation to allow foreign participation in the proposed initial share sale of insurance giant Life Insurance Corporation of India (LIC), sources said.


Foreign participation would be allowed as per the listing norms of the Securities and Exchange Board of India (SEBI) and the extant sectoral guidelines, they added.


Apart from the government and Reserve Bank, foreign investment in the insurance sector is also regulated by the Insurance Act, IRDA Act and the rules made thereunder, which are implemented by sector regulator IRDAI.





The initial public offering (IPO) of would be also guided by IRDAI capital regulations.


If any clarification is required, the government can come out with amendments to relevant rules, the sources said.


To facilitate the listing of LIC, the government earlier this year made amendments to the Life Insurance Corporation Act, 1956.


As per the amendment, the central government will hold at least 75 per cent in for the first five years post the IPO, and subsequently hold at least 51 per cent at all times after five years of the listing.


The authorised share capital of shall be Rs 25,000 crore divided into 2,500 crore shares of Rs 10 each, as per the amended legislation. Up to 10 per cent of the LIC IPO issue size would be reserved for policyholders.


In her Budget 2021 speech, Finance Minister said the IPO of LIC would be launched in the financial year beginning April 1. Currently, the government owns 100 per cent stake in LIC.


Once listed, LIC is likely to become one of the biggest domestic companies by market capitalisation with an estimated valuation of Rs 8-10 lakh crore.


The Department of Investment and Public Asset Management (DIPAM), which manages the government’s equity in state-owned companies, has selected actuarial firm Milliman Advisors for ascertaining the embedded value of LIC for meeting the government’s disinvestment target.


Last month, appointed 10 merchant bankers, including Goldman Sachs (India) Securities, Citigroup Global India and Nomura Financial Advisory and Securities (India), to manage the mega initial public offering of the country’s largest insurer.


Other selected bankers include SBI Capital Markets, JM Financial, Axis Capital, BofA Securities, J P Morgan India, ICICI Securities and Kotak Mahindra Capital Co Ltd.


The Cabinet Committee on Economic Affairs had in July cleared the initial public offering proposal of LIC.


The listing of LIC will be crucial for the government in meeting its disinvestment target of Rs 1.75 lakh crore for 2021-22 (April-March).


So far this fiscal, Rs 9,110 crore has been mopped up through minority stake sales in PSU and sale of SUUTI stake in Axis Bank.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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