The mega initial public offering of Life Insurance Corp (LIC) may spill over to the next fiscal as the government on Monday took the first step to an independent actuarial valuation of the country’s largest insurer.
The finance ministry has invited bids from actuarial firms to arrive at the embedded value of LIC ahead of its stake sale.
The government plans to sell a minority stake in the insurance behemoth and list it on the bourses. It has already appointed Deloitte and SBI Caps as the pre IPO transaction advisers.
In the bid notice, the Department of Investment and Public Asset Management (Dipam) said LIC needed to develop an Indian Embedded Value (IEV) reporting framework to make the disclosures for the proposed initial public offering (IPO).
Embedded value is a common valuation measure used to estimate the consolidated value of shareholders’ interest in an insurance company.
The request for proposal has been issued to seek bids from reputed and eligible actuarial firms to work with LIC to “develop IEV in line with the requirements of the relevant Acts and regulations, Actuarial Practice Standards and guidance notes issued by the Institute of Actuaries of India and LIC Act, 1956, and to provide support during the IPO process”, it said.
The last date for the submission of bids is December 8.
Deloitte and SBI Caps have been working with LIC to list out the items of compliance. The legislative amendment to facilitate the IPO by making changes in the LIC Act is being worked out by the Department of Financial Services.
The department is working out amendments to Sections 24, 28 and 37 of the LIC Act. Section 24 deals with the way the corporation handles its corpus, Section 28 is about dividend distribution and Section 37 provides government guarantee on all its policies.
At present, LIC pays 5 per cent of the surplus to the government, while the remaining 95 per cent goes to its policyholders.
In comparison, private insurance companies pay 10 per cent of their surplus to shareholders and the rest goes to the policyholders.
The amendment to the LIC Act could possibly bring the state-owned insurance firm on a par with other insurance companies.
In the 2020-21 budget, finance minister Nirmala Sitharaman had announced the government's plan to sell a part of its holding in LIC.
by way of IPO. "Listing of companies on stock exchanges disciplines the company and provides access to financial markets and unlocks its value. It also gives an opportunity for retail investors to participate in the wealth so created," she had said.
The government has budgeted to collect Rs 2.10 lakh crore from stake sales this fiscal. This include Rs 1.20 lakh crore from CPSE disinvestment and Rs 90,000 crore from selling stakes in financial institutions. So far this fiscal, the government has been able to mop up Rs 6,138 crore from the divestment of PSUs.