run Life Insurance Corporation of India’s (LIC) embedded value has been finalised at more than Rs 5 trillion ($66.82 billion), a government official who is overseeing what is expected to be the country’s largest IPO said on Thursday.
While there has been speculation about the number – from as low as $53 billion to as high as $150 billion – this is the first time the government, which owns 100% of LIC, has commented on the matter.
The embedded value will help establish the market valuation of LIC and determine how much money the government raises in the flotation. That will be crucial for the government to help meet its divestment targets and keep its fiscal deficit in check.
“I would say the embedded value could be more than 5 trillion rupees and the enterprise value will be multiples of that,” Tuhin Kanta Pandey, secretary, department of divestment, told Reuters in an interview.
Media reports in India have projected LIC’s market valuation at around four times the embedded value.
Pandey said the government planned to issue a draft IPO prospectus to investors as early as next week.
Push to Privatisation
PM Narendra Modi’s government slashed its divestment target to Rs 780 billion ($10.43 billion) in the year ending in March, from an earlier budgeted target of Rs 1.75 trillion. It is banking on LIC’s initial public offering to meet its revised target.
It has so far raised about Rs 120 billion by selling stakes in other companies. Selling 5 per cent of LIC’s stock to gain that amount could be ideal but the government was also willing to sell as much as 10 per cent, government and banking sources have said.
Pandey, however, declined to disclose the size of the stake the government would sell in the first round.
He said after selling national carrier Air India successfully, the listing of the LIC would be a major event for markets, aiming to attract retail investors and to build a public opinion about the privatisation.
The listing of LIC could make it as one of the top five largest companies in terms of market cap, joining the club of Reliance Industries, TCS and HDFC Bank.
LIC is not likely to issue fresh shares in the primary market and the entire issuance is likely to be sold in the secondary market, Pandey said.
Under the current plans, the government would keep its majority of its stake in the LIC.
