₹13 lakh cr Estimated Value Life Insurance Corp
₹51,000 cr Bonus to policyholders Paid in 2019-20
70% market share In India’s Life Cover Space
The Unfolding
1 February 2020 Government announces intention to float IPO
5 February 2020 Union stages strike against decision
7 February 2020 LIC Chairman MR Kumar clarifies stake sale is not privatisation; FM says IPO to bring in retail investors
22 August 2020 SBI Capital Markets and Deloitte Touche Tohmatsu hired as pre-IPO transaction advisors
16 November 2020 Centre floats global tender to engage an actuarial firm to estimate value* of LIC
31 December 2020 Milliman Advisors selected for calculating EV
1 February 2021 Budget proposes changes to the LIC Act
*Embedded value (EV), or consolidated value of shareholders’ interest in life insurance business
It’s saral. At 66, she would be mature enough to don a new look, and step out into the open.
LIC gets ready to go public. The Life Insurance Corporation – often a lifeline for the government in times of crunch – comes handy when the finance minister works out a ₹1.75-lakh-crore cash jab for a staggering economy. Billed to be valued at anything between ₹90,000 crore and ₹1.3 lakh crore, the maiden public issue will be the biggest in the history of the Indian capital market.
Listing LIC, a plan the ministry has been working on for over a year, comes as the obvious choice for the government to weather the rough winds after the worst marauder in human history, the COVID-19 pandemic, drove most global economies down to their knees. The toll has been such that the finance minister had to put a general insurance company also on the block along with two public lenders, and widen the door to foreign funds into the insurance sector up to 74 per cent, to fund this ₹1.75-lakh-crore capital expenditure.
While drafting her Budget for the fiscal 2021-22, Finance Minister Nirmala Sitharaman opted for selling assets, instead of slapping new taxes on the people and businesses, to secure growth for the economy. She has set 2021-22 as deadline for completing strategic divestment in public sector entities like Bharat Petroleum Corporation (BPCL), Air India, Shipping Corporation of India (SCI), Container Corporation of India, IDBI Bank, BEML, Pawan Hans and Neelachal Ispat Nigam Ltd.
Markets cheered the move and indices went on a rally on Monday. The S&P BSE Sensex surged over 3,300 points in just two sessions after the Budget was tabled. Most brokerages called the proposals “pro-growth” that will lead to a “capex-driven revival for the economy” from the COVID-19 woes.
The disinvestment overdrive of the government comes as a huge boost for the green shoots of recovery that have begun showing up since the authorities lifted the COVID containment measures. The biggest of the divestments – the initial public offer (IPO) of LIC – is expected to hit the market around October, while the government looks to complete the process for BPCL and IDBI Bank by September 2021.
According to Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey, the government has introduced the legislative amendments required for diluting its stake in LIC and IDBI Bank through the Finance Bill 2021. It has also received the preliminary expression of interest for stake sale in Bharat Petroleum Corporation (BPCL) and Air India, while the same for SCI is due on February 13.
“The LIC Amendment Act and the Amendment to IDBI Bank (Transfer of Undertaking and Repeal) Act have been made part of the Finance Bill. There will be no separate Bill. The LIC IPO would come postOctober,” says Pandey.
DIPAM, which manages the government’s equity in state-run companies, has signed up actuarial firm Milliman Advisors for ascertaining the embedded value of LIC, while Deloitte and SBI Caps have been appointed as pre-IPO transaction advisors.
Withering Ulips
With Finance Minister Nirmala Sitharaman bringing unit-linked insurance policies (Ulips) under the tax net, private sector insurers will suffer a blow to their toplines.
Earlier, participatory or non-participatory Ulips above ₹2.50 lakh were not taxable even if they were surrendered before the maturity or on maturity. From February 1, 2021, Ulips will be taxed at 10 per cent long-term capital gains (lTCG) plus the securities transaction tax (STT) on the lines of mutual funds. The move will adversely impact higher ticket size regular and single premium Ulips. iCiCi prudential has the highest mix of Ulips at 55% (FY20). insurers, particularly from the private sector, would now prefer to sell Ulips under ₹2.50 lakh.
Ulips are considered as tax-saving investment instrument. Retail and high net-worth individual (HNi) investors invest in Ulips along with other tax saving instruments to ease their tax load.
Although the finance minister did not disclose the size of the stake that would be up for grabs in the first tranche, the Finance Bill says that the government may dilute up to 25 per cent holding in LIC within the next five years but will never let its share fall below 51 per cent. The initial divestment is likely to be 10 per cent with the government keeping 15 per cent more as rain check. The public issue will keep its 10 per cent for policyholders. “There will be a 10 per cent discount for policyholders investing in the IPO,” the Bill says.
The state-run insurer is believed to be worth anything between ₹9 lakh crore and ₹13 lakh crore, according to independent valuation firm RBSA Advisors. The agency based its calculations on the market capitalisation (M-cap) as a percentage of assets under management (AUM), which is lower for LIC, compared to its listed peers like SBI Life Insurance, HDFC Life Insurance and ICICI Prudential Life Insurance. A more accurate valuation is expected when the embedded value of the insurer will be calculated.
“We are yet to see how the business gets defined once it is corporatised. The true valuation will be derived thereafter, but it will be one of the mega large caps no doubt,” bets Equirus Capital Managing Director Ajay Garg.
Continue reading your story on the app
Continue reading your story in the magazine
Wage Redefined, Pay Reduced
Introduction of the new wage code from April 1 is likely to affect take-home salary for employees across public and private sectors but ensure a better retirement package
‘Invest Across A Wide Spectrum'
Actor Masumeh Makhija believes in diversity when it comes to planning her investments
SEIZE THE DAY, MY FRIEND!
It’s always, earlier the better, when it comes to planning for the time after you hang up your boots. It’s a longterm proposition and is often tangled with a host of duties and dreams. Saving from an early life smoothens the job but a late-starter is certainly not a no-getter.
Riding The Time Machine
Covid-19 has battered non-banking financiers, assets are in the throes of defaults, yet they have proved their resilience time and again, and crossed the bar. NBFCs – which throw the lifeline to the base of the pyramid – are fixed firmly on the ground with their unmatched ability to evolve into indispensability for the Indian economy
Lower Rate A Business Booster In Hard Times
Home loan interest rates have reduced over the last few months – at a time when the entire world went through one of the toughest phases. The economies have just begun reviving. A lower interest rate is the need of the hour to support the nascent resurgence in the Indian economy, says SBI Chairman Dinesh Khara in an interaction with Outlook Money. Excerpts from the interview:
Life Cover For Lives In The Lurch
Insurance regulator has issued a diktat for life insurance policies to cover transgenders but insurers see very few takers and buyers find the products too costly, too complex
It's Ease Of Doing Investments
Sebi plans to introduce regulatory-light regime with the debut of Accredited Investors in the Indian securities markets. The regulator faces a host of challenges to counter risks of investor frauds
Bank On Banks For The Nest Boom
BFSI stocks proved to be the best bet when everything went into a tailspin. A reviving economy pumps enough fuel in them to drive your funds to higher orbits
Always Invert To Get It Straight
Fill up your emergency bucket, house your interests in the investment bucket, and save in your dream bucket
Post Office Savings Schemes Banking On The Age
A higher risk appetite for faster and heftier returns divides India into two sections of investors. The seniors still trust the good-old Post Office Saving Schemes, while the juniors rush for new-age investment instruments.
Reincarnation And Realpolitik
China, India, and the U.S. are vying to influence the selection of the next Dalai Lama
An Exclusive Interview With Nandakumar Narasimhan
The Little Red Train
A Room for Dad
Before Mom passed, I made a promise to her
THE DANGAL IN THE JUNGLE, PART 1
YOU KNOW YOU’RE SOMEBODY WHEN YOU’VE APPEARED ON AN INDIAN DANGAL POSTER — IN OTHER WORDS, IN A WRESTLING ADVERTISEMENT.
WOUNDS AND THE WOMB
JULIE PETERS explores how to heal a relationship with the sacred womb, a place of death, life, and possibilities.
BE SQUIRRELY
Giant squirrels, giant lessons? Animal chaplain SARAH BOWEN explores what squirrels can show us about mindfulness.
E8 Caste and the Indian Tech Ivies
IIT grads are highly sought after in Silicon Valley. Are they bringing deep-rooted prejudices with them?
Life Changing
I was happily married, happily employed, just plain happy. Until the accident
IN SEASON Chickpeas (GARBANZO BEANS)
Chickpeas appear in early recordings in Turkey well over 5000 years ago. India produces the most chickpeas worldwide but they are grown in more than 50 countries. An excellent source of carbohydrates, protein, fiber, B vitamins, and some minerals, they are a nutritious staple of many diets. The name chickpea comes from the Latin word cancer, referring to the plant family of legumes, Fabaceae. It is also known by its popular Spanish-derived name, the garbanzo bean. Kidney beans, black beans, lima beans, and peanuts are other familiar foods found in this legume family.
When the Signal Goes Out
Government-ordered internet shutdowns are becoming more frequent