Stage Set For LIC IPO?

There are indications that the government is preparing the ground for one of its mega offering of shares in the form of Initial Public Offer (IPO) of Life Insurance Corporation (LIC) of India. The centre had proposed to garner Rs 2,10,000 crore through disinvestment (stake sale) from its various companies in February this year as part of resource mobilisation. It planned to raise close to 50 per cent of this amount, close to Rs 1,00,000 crore, by divesting 10 per cent of LIC equity as part of its ambitious disinvestment programe in this year’s budget.  

The Securities and Exchange Board of India (Sebi), the capital market regulator seems to have come in to action mode with regard to this move. Sebi has come out with a consultation paper in November on review of requirement of minimum public offer for large issuers in this regard.

According to experts, the exercise undertaken by the regulator is apparently intended at the government’s effort to bring in mega issue of LIC and its smooth sailing. The LIC IPO, if it happens, will no doubt be one of the biggest IPO that may have hit the Indian market. The chances of it happening this year is very remote as the primary market sentiment is not that conducive at the moment and in rest of the financial year. But to make it a grand success, a very careful preparation needs to be in place. The recent move by the regulator to act as a facilitator could be part of that efforts, they added.

Sebi has put a consultation paper in this regard on its website in the first half of the last month and sought public comments on the same till December 7. However, due to COVID restrictions in place, it has now decided to extend the deadline for receiving the public comments by two weeks to December 24.

After collating the comments and going through it, Sebi will take a decision in this regard in its earliest board meeting on the issue, sources said.

The Sebi consultation paper deals with a review of requirement of minimum public offer for large issuers in terms of Securities Contracts (Regulation) Rules. It has proposed to reduce the minimum offer size in an initial share sale, whereby companies with a post-issue capital of above Rs 10,000 crore would be required to offer at least 5 per cent stake in IPO.

At present, all companies with a post-issue capital above Rs 4,000 crore are compulsorily required to dilute at least 10 per cent shareholding in its IPO.

Sebi paper discussed the scenario where there could be large issuers, who may not be compliant with 10 per cent Minimum Public Shareholding (MPS) at the time of listing.

Accordingly, the regulator recommended that MPS of 10 per cent should be achieved in 18 months by such issuers and 25 per cent within three years from the date of listing. Further, the regulator suggested providing additional time to comply with MPS of 25 per cent in case of very large issuers with post-issue market capitalisation of Rs 1 lakh crore and above. For such issuers, it has been proposed that minimum of 10 per cent should be achieved in two years and 25 per cent within five years from the date of listing. Currently, companies need to achieve MPS of 25 per cent within three years of listing.