According to the current FDI policy, 74% foreign investment is permitted under the automatic route in the insurance sector. However, these rules do not apply to the LIC, which is governed through LIC Act.
Ahead of the mega initial public offer of the Life Insurance Corporation in mid-March, the Union Cabinet on Saturday approved a 20% foreign direct investment limit under automatic route in LIC, an enabling provision aimed at attracting long-term foreign investors to the issue, sources said.
According to the amendment to the LIC Act through the Finance Act 2021, the government could dilute only a 25% stake in the insurer in the first five years and the government equity won’t fall below 51% at any point in time. So, 49% public float in LIC is a long way to go as well as full utilisation of the FDI limit.
On February 13, LIC filed the draft red herring prospectus (DRHP) in which the government offered to sell a 5% stake in LIC that could fetch it around Rs 70,000-80,000 crore (if it is valued three times of EV). The valuation of the insurer will be known when the IPO price range is indicated before the IPO.
LIC has reserved 50% of the net offer (after excluding the portion reserved for policyholders and employees) for qualified institutional buyers or QIBs, 15% for non-institutional bidders and 35% for retail individual bidders in accordance with the Sebi regulations. Foreign institutional investors would come in the QIB category which includes domestic institutional investors also. Later, foreign investors could buy LIC shares from the secondary market.
According to the current FDI policy, 74% foreign investment is permitted under the automatic route in the insurance sector. However, these rules do not apply to the LIC, which is governed through LIC Act.