Centre allows 20% FDI in LIC ahead of IPO

18 Apr 2022 , 10:49 AM

According to the media reports, the government on Sunday has amended rules of the Foreign Exchange Management Act (FEMA), paving the way for up to 20 per cent foreign direct investment in the insurance behemoth LIC.

Further, the government is planning to dilute its stake in LIC through the Initial Public Offering (IPO).

LIC, in February, had filed the Draft Red Herring Prospectus (DRHP) before the markets regulator Sebi for the IPO.

Following the Cabinet’s approval, the Department for Promotion of Industry and Internal Trade (DPIIT) on March 14 amended the Foreign Direct Investment (FDI) policy to facilitate overseas investment in LIC ahead of the mega public offer.

“These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022,” as per a gazette notification issued recently.

Since the foreign inflows’ ceiling for public sector banks is 20 per cent under the government approval route as per the present FDI policy, it has been decided to allow foreign investment of up to 20 per cent in LIC and other such corporate bodies.

According to the draft paper, LIC’s embedded value, a measure of the consolidated shareholders’ value in an insurance company, has been pegged at about Rs5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.

While the government may consider a little more than the 5 per cent stake sale at the LIC IPO, it is not likely to reduce its stake significantly in LIC for at least 2 years following the insurer listing, because such a move could affect returns for investors participating in the mega IPO.

Source: Reports