LIC IPO May Not Have Special Provisions For Policyholders; Eligibility Criteria For Reserved Portion

LIC policyholders are awaiting the initial public offering (IPO) of the biggest life insurer in India. LIC filed its draft red-herring prospectus (DRHP) with the Securities Exchange Board of India (SEBI) on February 13.

There has been a lot of buzz about what’s there for LIC policyholders. We take a look at what LIC policyholders can expect.

What’s On Offer For LIC Policyholders?

As per the existing norms, up to 5 per cent and 10 per cent of the issue size could be reserved for the employees and the policyholders, respectively.

Any Indian resident, who is a policyholder of one or more LIC policies, as on the date of the DRHP and the bid/offer opening date, will be eligible to apply under the ‘Policyholder Reservation Portion’ category.    

“The existing policyholders may benefit from better transparency in both the operation and governance aspects of the insurance company,” states a report by brokerage form Motilal Oswal.  

What’s Not On Offer So Far?

So far, no special provision, such as discount in the share price, has been announced for LIC policyholders. “The aggregate of reservations for eligible policyholder(s) shall not exceed 10 per cent of the offer size,” the DRHP stated in its latest release. The size of each share has not been disclosed so far.   

LIC is likely to come with some provisions soon for the reserved portion for its employees, says the Motilal Oswal report.

What’s The Eligibility Criteria? 

LIC hasn’t yet declared any special provision for the policyholders but has announced the eligibility criteria.  

In its recent guidelines for its policyholders, LIC asked them to open their demat account in case they want to participate in this IPO. “In relation to DEMAT accounts, if you currently do not hold a valid DEMAT account, you should consider taking the following steps at your sole discretion and at your own cost,” stated its recent notice.

Moreover, policyholders need to keep the ‘know your customer’ (KYC) details updated and failing to update the PAN details before February 28, 2022, they won’t be able to participate in the IPO.   

In case of joint policyholders, only one of the two holders can apply for the equity shares.

What To Watch Out For 

Although the government has been strongly encouraging Indian citizens and other foreign investors to invest in the LIC IPO, the DRHP cautions investors about potential risks. It mentions that just like various other businesses, their business has also been severely affected due to Covid-19.   

“Events such as changes in regulatory policies, volatility in capital markets, loss of customer confidence in the insurance industry or in us, or sharp declines in our customers’ financial positions due to a severe deterioration in economic conditions, such as the economic deterioration caused by the COVID-19 pandemic, may cause discontinuations of our customers’ insurance policies,” states the DRHP (read more about the risks factor here).