Ahead of share sale, Centre weighs allowing FDI in LIC
Any investment in the state-run insurer would be subject to a certain cap
NEW DELHI: The government is considering allowing foreign direct investment in Life Insurance Corporation, according to a person familiar with the matter, which could enable a single overseas investor to buy a large stake in the firm that’s headed for a mega initial public offering (IPO).
Any strategic investment would be subject to a cap, though it’s unclear at what level that would be set, the person said, asking not to be identified as the deliberations are private. Participants at a meeting earlier this month noted a 20% FDI limit on state-run banks, the person said.
Allowing FDI in LIC would permit so-called strategic investors such as massive pension funds or insurance firms to participate in the initial public offering, which is slated to be India’s largest ever.
The Reserve Bank of India defines FDI as purchase of a stake that’s 10% or larger by an individual or entity based abroad.
Bankers seeking to arrange LIC’S IPO are due to make presentations to the government Thursday.
Prime Minister Narendra Modi’s administration—which owns 100% of LIC—IS looking at the sale to help narrow its budget gap to 6.8% of gross domestic product in the year through March 2022.
The listing could value LIC at as much as $261 billion, based on its assets under management and using private sector insurers as a benchmark, analysts at
Jefferies India wrote in a February note.
While FDI of as much as 74% is permitted in most Indian insurers, the rules don’t apply to LIC because it is a special entity created by an act of parliament, the person said, adding that the discussions regarding FDI are at an early stage and no final decision has been reached yet.
A spokesperson for the finance ministry couldn’t be immediately reached for comment.
BNP Paribas SA, Citigroup Inc. and Goldman Sachs Group Inc. are among seven foreign banks vying to manage the IPO. Nine Indian firms include HDFC Bank Ltd. and Axis Capital.
The report comes a day after it was stated that as many as 16 merchant bankers are in the race to manage the LIC IPO — touted to be the biggest share sale in the country’s history. These bankers will be making a presentation before the Department of Investment and Public Asset Management (Dipam) spread over two days — August 24 and 25.
The Cabinet Committee on Economic Affairs had last month cleared the initial public offering proposal of LIC.