DPIIT Notifies 20% FDI In LIC Under Automatic Route

The Department for Promotion of Industry and Internal Trade (DPIIT) on Monday notified a government decision to allow up to 20 per cent foreign direct investment (FDI) in IPO-bound LIC with an aim to facilitate disinvestment of the country's largest insurer.

The Union Cabinet had last month approved the decision on FDI in the insurance behemoth.

The notification has inserted a paragraph in the existing policy allowing up to 20 per cent FDI in LIC through the automatic route.

Foreign investment in LIC shall be guided by Life Insurance Act, 1956 as amended from time to time and such provisions of the Insurance Act, 1938, said the notification which has bifurcated other conditions into two parts -- LIC and other insurance companies.

Since as per the present FDI policy, the foreign inflows' ceiling for public sector banks is 20 per cent under the government approval route, it has been decided to allow foreign investment of up to 20 per cent for LIC and such other corporate bodies.

LIC being a statutory corporation, is not covered under either insurance company or intermediaries or insurance intermediaries, and no limit was prescribed 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 laws.

The insurance company would be allowed aggregate holdings by way of total foreign investment in its equity shares by foreign investors, including portfolio investors, not exceeding 74 per cent of the paid-up equity capital, the DPIIT Press Note 1 of 2022 said.

Further, the Press Note introduced the concept of share-based employee benefits issued to non-resident employees or directors.

Issue of stock option or sweat equity for share-based employee benefit cannot be availed by citizens of Bangladesh or Pakistan without prior approval of the Government of India, it added.

Setting the stage for the country's biggest-ever public offering, Life Insurance Corporation (LIC) on February 13 filed draft papers with capital market regulator Sebi for sale of 5 per cent stake by the government for an estimated Rs 63,000 crore. The DRHP has been cleared by Sebi earlier in February.

The initial public offering (IPO) of over 31.6 crore shares or 5 per cent government stake was originally planned to be launched in March, but the Russia-Ukraine crisis has derailed the plans as stock markets are highly volatile currently.

Employees and policyholders of the insurance behemoth would get a discount over the floor price.

According to the draft red herring prospectus (DRHP), LIC's embedded value, which is a measure of the consolidated shareholder's value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.

Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around Rs 16 lakh crore.

The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC's market valuation would be comparable to top companies like RIL and TCS.

So far, the amount mobilized from the IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.