FDI Tweak, Policyholders’ Discount, Govt Goes The Distance to Make IPO a Success

As the LIC IPO is set to hit the market in the first week of May, the government and Life Insurance Corporation‘s executives are making all-out efforts to make the initial public offering a success. The government is taking steps such as making changes in relevant rules to attract foreign investors, publishing advertisements and sending SMSes to policyholders to give it a boost.

The country’s largest insurance behemoth has been publishing advertisements in newspapers titled ‘It’s best in life to be prepared’, explaining things required to participate in the LIC IPO. To be able to participate, the state-owned insurer asked LIC policyholders to update personal records, such as permanent account number, date of birth, gender, email ID, and mobile number, with it.

Life Insurance Corporation also asked those who do not have a demat account to open it. It has also been sending SMS to policyholders to inform them about the IPO.

Recently, the government also amended the Foreign Exchange Management Act’s (FEMA) rules, paving the way for up to 20 per cent foreign direct investment in LIC. It will allow large foreign portfolio investors to subscribe to its shares.

LIC IPO: The Fiscal Math

The government expects to garner Rs 21,000 crore from the LIC IPO proceeds, The government has a disinvestment target of Rs 65,000 crore for the current financial year 2022-23. However, experts say it will be difficult for the government to meet its deficit targets given that the IPO size is now much smaller, as compared with the earlier size of over Rs 50,000 crore.

For the current financial year, the government has a fiscal deficit target of Rs 16,61,196 crore, or 6.4 per cent of GDP, according to the Union Budget documents.

In the last financial year 2021-22, it had set a disinvestment target of Rs 1.75 lakh crore. Out of this, only Rs 78,000 crore could be achieved, a shortfall of 55.4 per cent. The LIC IPO was to be launched in the last financial year but was delayed due to the COVID-19 pandemic and then the Russia-Ukraine war.

LIC IPO Date, Price, Quota

The LIC IPO is likely to open on May 4 and close on May 9, sources told CNBC-TV18. The anchor book for the IPO is likely to open on May 2. The Securities and Exchange Board of India (Sebi) has already given its approval to the updated draft red herring prospectus for the IPO, through which the government will offload its 3.5 per cent stake, instead of the 5 per cent planned earlier.

The price band for the IPO has been fixed at Rs 902-949 per share with a bid lot size of 15, the sources said. Retail investors and employees will be getting a discount of Rs 40 per share, they added.

The IPO will have a quota of 10 per cent for policyholders, of the issue size of 2.21 crore shares. Employees will be able to participate in the exclusive 15 lakh shares.

Retail investors will be eligible to participate in about 35 per cent of the IPO issue size and about 15 per cent will be reserved for non-institutional investors. Around half of the IPO issue has been fixed for qualified institutional buyers (QIBs). Out of the QIB’s portion, 60 per cent has been earmarked for anchor investors on a discretionary basis.

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