Valuing LIC

HOW THE 64-YEAR-OLD LIFE INSURANCE CORPORATION SHOULD BE VALUED FOR STOCK MARKET LISTING

- ANAND ADHIKARI

Chief Economic Advisor K.V. Subramanian recently hinted that the government could mobilise ₹90,000 crore by selling 6-7 per cent stake in Life Insurance Corporation (LIC). This was the first statement by a senior government functionary on the issue after Finance Minister Nirmala Sitharaman announced plans for LIC’s initial public offering (IPO) in her FY21 Budget speech. “I have done some back-of-the-envelope calculations,” he said. This ₹90,000 crore for a 6-7 per cent stake puts LIC’s valuation at ₹12.85-15 lakh crore, making it India’s second most valued company after Reliance Industries (RIL), ahead of marquee names such as HDFC Bank, TCS, Infosys and HUL.

But it’s too early to celebrate. Valuing the 64-year-old company is perhaps the toughest of tasks because of its opaque style of operations. One reason is that it is governed by the LIC Act of 1956 with Insurance Regulatory and Development Authority of India (IRDAI) having very little say in regulating its operations. Then there is the complex product portfolio skewed towards savings than protection (in contrast to other listed life insurers) and a sovereign guarantee backing every policy. There are also concerns about a unique profitsharing arrangement under which policyholders pocket 95 per cent surplus and shareholders (right now, government of India) get 5 per cent. “The entire structure of LIC has to be revisited to make it more investor friendly. If a major part of surpluses goes to policyholders, investors, especially institutional, will be wary of investing,” says Ajay Sharma, Managing Director, Valuation Services (India) at Colliers International. Last, but not the least, a large chunk of LIC’s equity investments comprise PSU shares it was forced to buy over the years to help the Centre meet its disinvestment targets.