The embedded value of Life Insurance Corporation has been estimated at over Rs 5 lakh crore and the government plans to offload around 5 per cent stake through the initial public offering.

“The embedded value could be more than Rs 5 lakh crore and the enterprise value will be multiples of that and a minimum float of 5 per cent will be done,” Tuhin Kanta Pandey, secretary, department of divestment, told The Telegraph.

The embedded value is an indicator representing the corporate value of a life insurance company. It is a combination of the present value of future profits and the net asset value of the insurer.

Pandey said the draft red herring prospectus (DRHP) would be filed by next week which would give investors an idea about the issue. The more intensive activity of finalising anchor investors and roadshows would start after that, he said.

Tuhin Kanta Pandey Sourced by The Telegraph

“A portion of the LIC’s IPO would be reserved for anchor investors. The policyholders of the country’s largest insurer will also have a portion of LIC’s IPO reserved for them like it was done in case of IPOs of IRFC and RailTel,” he said.

The selloff secretary said the IPO would also see the participation of foreign investors, and the DPIIT is making the necessary changes in the FDI norms to be placed before the cabinet.

According to the FDI policy, 74 per cent foreign investment is permitted under the automatic route in the insurance sector. However, these rules do not apply to LIC, which is administered through a separate LIC Act.

The listing of LIC would make it one of the top 5 largest companis in terms of market capitalisation joining Reliance Industries, TCS and HDFC.

The government hopes to collect more than the revised disinvestment target from the LIC IPO. In Budget 2022-23, the finance minister has slashed disinvestment proceeds to Rs 78,000 crore for the current fiscal against budgeted level of Rs 1.75 lakh crore.

So far, the government has mopped up Rs 12,030 crore from PSU disinvestment and strategic sales. This includes Rs 2,700 crore from the Air India privatisation and another Rs 9,330 crore through a minority stake sale in various central public sector enterprises (CPSEs).

In 2020-21, the insurer’s assets under management (AUM) doubled to Rs 36.7 lakh crore on a standalone basis. Even after the IPO, the government will hold at least 75 per cent stake in LIC for the next five years and will continue to hold at least 51 per cent in the life insurer after that period as per the amendment to the LIC Act.