Govt kickstarts LIC divestment, invitations bids for transaction advisors for IPO

MUMBAI: The Centre on Friday receive the ball rolling for partial divestment of its stake in India’s most moving insurer and institutional investor – Life Insurance Corporation of India (LIC).

The Department of Investment and Public Asset Management (Dipam) below the finance ministry has issued a quiz for proposal (RFP), making an attempt for to eradicate pre-transaction advisors for partial disinvestment of the executive’s equity shareholding in LIC via an IPO, the scope of which can encompass advising executive on the fundamental amendments fundamental to the LIC Act.

It proposes to eradicate as much as two pre-IPO transaction advisors from “reputed official consulting firms/ funding bankers/ service provider bankers/ monetary institutions/ banks, independently (not in consortium) for facilitating or assisting Dipam in the preparatory processes resulting in the IPO of LIC India.”

The executive has 95% stake in LIC, in step with the RFP.

The final date for suppose submission is 13 July, and the bids will be opened 14 July.

Within the meanwhile, there are 24 life insurers in India, with dispute-speed LIC being the finest, commanding a market piece of 69% in fiscal 2020. LIC light a total first year top class of Rs. 1.78 trillion in FY20, up 25.2% year-on-year, in step with the Insurance Regulatory and Vogue Authority.

The Dipam round talked about to qualify as an advisor for the pre-IPO deal, the bidder must light fetch an ride of handling at least one IPO of a minimum size of 5,000 crore between 1 April, 2017, and 31 March, 2020, or must light fetch managed a capital market transaction of 15,000 crore or extra at some stage in this length.

The cost quoted by the possible advisor for the deal ought to be not much less than Rs1.

Whereas presenting the Union Funds for 2020-21, finance minister Nirmala Sitharaman had talked about, “Itemizing of firms on stock exchanges disciplines the firm and affords fetch admission to to monetary markets and unlocks its ticket. It also affords a probability for retail investors to take part in the wealth so created. The Authorities now proposes to sell a phase of its maintaining in LIC by manner of Initial Public Provide (IPO).”

Itemizing of LIC could per chance simply not be a easy job because it would require amending the LIC Act.

On 7 February, Mint reported that amendments to the Life Insurance Corporation Act, 1956, along side altering the manner LIC distributes its surpluses, will be key to the proposed public provide.

The proposed IPO of LIC will be preceded by amendments to Sections 24, 28 and 37 of the Act. Piece 24 affords with the manner the corporation handles its corpus, Piece 28 is about dividend distribution norms and Piece 37 affords executive guarantee on all its insurance policies.

Presently LIC will pay 5% of the surplus to the executive, while the excellent 95% goes to its policyholders. This must be relooked when LIC gets listed and there is an external shareholder who ought to be entitled to fetch dividends rather than the executive.

Non-public insurers pay 10% of their surplus to shareholders and the comfort goes to policyholders.

In 2018-19, LIC generated a surplus of Rs.53,214.41 crore and paid Rs.2,611 crore as dividend to the executive.

In step with existing rules below Piece 37 of the Act, “sums assured by all insurance policies issued by the corporation along side any bonuses declared in respect thereof…will almost definitely be assured as to fee in cash by the central executive.

LIC can fetch think on the retention of executive’s guarantee of the divested entity upon itemizing.

Piece 24 of the Act also must be amended. The piece explains how “the corporation shall fetch its possess fund and all receipts of the corporation will almost definitely be credited thereto and all funds of the corporation will almost definitely be made therefrom”.

LIC’s equity capital stands at 100 crore, which must be elevated in narrate to sell even a 10% stake.

To cope with these components, Dipam, on Friday, talked about the advisors will be required to preserve up in suggestions the capital structure of LIC and suppose the executive and LIC on optimal capital structure along side permitted capital, face ticket and bonus ratio along side every other that which that it is possible you’ll per chance per chance per chance recall to mind choices to restructure the capital irascible and heaps others.

They’re going to also want to back LIC prepare restated consolidated monetary statements for the past three years for the LIC Group along side its subsidiaries, branches and international operations, talked about the executive.

Advisors can even want to back the executive on modalities of IPO and the timing of the minority stake sale in LIC, rather than recommending the need for every other intermediaries for the technique.

This could per chance per chance be the advisors’ job to enhance LIC in its preparation for the IPO and issues relating to to compliance with Sebi and Irdai’s itemizing laws along side IPO utility to Irdai.

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