Employees likely to get 10% discount in LIC IPO

Govt to pitch for amendments to LIC Act in Monsoon Session

Long-term employees of Life Insurance Corporation (LIC) of India could benefit significantly from the proposed initial public offering (IPO) of the state-owned insurer. Sources in the government said the divestment process will have a special quota, allowing acquisition of shares at 10 per cent discount.

The development assumes significance since the government is expecting high demand for the public issue. Hence, if the same employee bids through the retail quota, chances of getting an allotment are bleak. LIC has 110,000 employees as of March 2019.

However, the final decision on the allotment of shares and discount will be finalised by a Group of Ministers once the Cabinet approves the final draft of the stake sale. “The government is considering a discount to employees up to 10 per cent during the divestment process, along with bonus in the initial days,” said a person privy to the plan.

The Department of Financial Services, under the finance ministry, has sought inputs and comments from all the financial regulators on the draft note for stake sale in LIC.

Sources say it will be finalised by the end of this month. “The draft note has been shared with the Securities and Exchange Board of India (Sebi), Reserve Bank of India, Insurance Regulatory and Development Authority of India and others. They have been given 15 days to respond,” said a person, adding that the Centre was expecting to file the draft paper by the end of the calendar year.

Other than incentives, the draft said the government would cut its stake to 75 per cent, from the existing 100 per cent in the insurer. However, this will be done in one or more tranches, in line with Sebi’s directive. According to it, the minimum shareholding should be at least 25 per cent within three years of listing, added another source. The same draft also proposed six amendments to the LIC Act, 1956, including the Section which explains that LIC is a statutory body that needs to be redefined as a company under the provisions of the Companies Act.

Other Sections which require amendment deal with board composition and restructuring, profit sharing with shareholders, dividend distribution, issued capital, expansion of paid-up capital, and reserve funds.

The IPO is not possible without certain legal amendments. For instance, it will help expand the capital base, which currently stands at ~100 crore. Before 2011, the capital of the Corporation was ~5 crore, which was expanded after the amendment made to the LIC Act was passed.

The Department of Investment and Public Asset Management has appointed Deloitte and SBI Capital Markets as transaction advisors for the IPO. The valuation is not known yet — it will depend on factors like assets and liabilities and products.

LIC has roughly ~31 trillion total assets, of which contribution from policy is 25 per cent and premium 67 per cent.

Sources say the government is planning to pitch for the amendment in the upcoming Monsoon Session of Parliament as a Money Bill, which requires a nod from the Lok Sabha.