LIC IPO: Valuation a major stumbling block 

Govt aims listing by the 4th quarter of this fiscal; no final decision on valuation may delay the process, say experts

Published: 20th October 2021 08:44 AM  |   Last Updated: 20th October 2021 08:44 AM   |  A+A-

Life Insurance Corporation of India

LIC building in Chennai (File Photo| PTI)

Express News Service

NEW DELHI: Even when the government is pushing hard to list the initial public offering (IPO) of Life Insurance Corporation of India (LIC) by the fourth quarter, experts claim that arriving at exact valuation is proving to be a stumbling block and may delay the process further.

“LIC is not just another public sector enterprise. It is a huge company and the biggest challenge is to arrive at its valuation, which is must for the IPO. The company has not been technically valued and despite two three meetings the government is yet to sort valuation issue. It is only after that pricing and size of share sale can be decided. Despite all the efforts from the government side these technical aspects make it difficult to come up with the IPO in this fiscal year,” a top executive of one of the merchant bankers of the LIC told TNIE. 

The executive added that LIC was exempted from disclosing its Embedded Value (EV) and arriving at it is a comprehensive exercise in terms of ownership structure, product mix, profitability sharing structure, agency model, and also huge land banks and real estate assets, apart from restructuring of its balance sheet through reevaluation. And the Department of Investment and Public Asset Management (DIPAM), which is the nodal agency for the job, accepted that the task is complex.

“Nothing on Embedded Value yet. It’s a very complex thing, and we won’t be able to make any guesstimates,” Tuhin Kanta Pande, Secretary, DIPAM, told TNIE. The government is parallelly working on DRHP and they hope to come out with the draft paper by December.

“LIC IPO we are planning in the last quarter. We have advisors, merchant bankers and legal advisors are in place. EY is already helping LIC to shift to new software and working out new models required for embedded value (EV). Reporting actuary -- Milliman Advisors is also there. They are working out the EV, which is required as per the regulators,” Pande added.

To facilitate the listing of LIC, the government earlier this year made 27 amendments to the Life Insurance Corporation Act, 1956. The Cabinet Committee on Economic Affairs had in July cleared the initial public offering proposal of LIC. The government has already appointed 10 merchant bankers for the transaction. “The problem is not that we don’t want it or we are pussyfooting on it now, it is more a question of doing the due process,” Finance Minister Nirmala Sitharaman said two days ago.

Embedded value a comprehenSive task
LIC was exempted from disclosing its embedded value and arriving at it is a comprehensive exercise in terms of ownership structure, product mix, profitability sharing structure, and also land banks


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