LIC’s embedded value set at `5 L cr-plus: Secy

State-run Life Insurance Corporation of India's (LIC) embedded value has been finalised at more than Rs 5 lakh crore ($66.82 billion), a government official who is overseeing what is expected to be the country's largest IPO said on Thursday.

Investors are eagerly waiting for the government to indicate LIC's embedded value--a measure of future cash flows in life insurance companies and the key financial gauge for insurers—when it releases the initial public offering (IPO) draft prospectus, expected in a matter of days.

While there has been speculation about the number in Indian media—from as low as $53 billion to as high as $150 billion—this is the first time the government, which owns 100 per cent of LIC, has commented on the matter.

The embedded value will help establish the market valuation of LIC and decide how much the government raises in the flotation. That will be crucial for the government to meet its divestment targets and keep its fiscal deficit in check.

"I would say the embedded value could be more than 5 trillion rupees and the enterprise value will be multiples of that," Tuhin Kanta Pandey, secretary, department of divestment, told Reuters in an interview.

Media reports have projected LIC's market valuation at around four times

the embedded value.

Pandey said the government planned to issue a draft IPO prospectus to investors next week.

The government slashed its divestment target to Rs 78000 crore in the year ending in March, from an earlier budgeted target of Rs 1.75 lakh crore. It is banking on LIC's initial public offering to meet its revised target.

Pandey declined to disclose the size of the stake the government would sell in the first round.

He said after selling Air India successfully, the listing of the LIC would be a major event for markets, aiming to attract retail investors and to build a public opinion about the privatisation.

"It is the LIC moment for Indian markets and it will add depth," he said noting that it could help attract

more investors to invest in state-run companies.

The listing of LIC could make it as one of the top five largest companies in terms of market cap.

LIC is not likely to issue fresh shares in the primary market and the entire issuance is likely to be sold in the secondary market, Pandey said.

"I don't see any need for capital for LIC, it is sufficiently capitalised," he said, adding LIC could sell its stake in IDBI Bank in the next fiscal year.

Under the current plans, the government would keep its majority of its stake in the LIC.

The stake cannot come below 51 per cent by law and that will be retained, he said, and even in five years it could not sell more than 25 per cent of its stake in LIC.