LIC's top 3 priorities before hitting Dalal Street with the mega IPO

Life Insurance Corporation (LIC), the largest life insurer in the country, has set three key priorities for itself before it hits the capital market with an initial public offering (IPO). The three priorities include creation of right perception in the minds of investing community, work on the price discovery to unlock the valuation and end the financial year 2019-20 on high performance. MR Kumar, Chairman, LIC highlighted these priorities in a press conference earlier today in Mumbai. Take a look:

Creating the right perception

There is a misconception in the market that LIC will be privatised. The government will only be divesting some of its stake in LIC the way it has done in some public sector banks in the past. The quantum, while yet to be announced, may not be more than 10 per cent. For LIC to become privatised, the government's stake needs to fall below 51 per cent, which is unlikely.

Price discovery

The second issue is of valuation. LIC needs to appoint investment bankers to open the books and value its various properties and hidden assets to arrive at the right value. Currently, the total assets of the corporation are over Rs 34 lakh crore. Life insurers are valued on the basis of embedded value or enterprise value or new business premium or a certain percentage (8-10 per cent) of the total asset under management. But in the case of LIC, it is difficult to apply only one method given its assets size, legacy, hidden real estate assets and the composition of business.

The capital structure could also undergo a change as the current capital base is just Rs 100 crore against total assets of over Rs 32 lakh crore. The government will have to increase the paid up capital to infuse fresh capital or a fresh issuance of capital to public.

Ending FY20 on a high

The third priority is to end the year on a high. With 70 per cent market share, LIC generated the highest ever total valuation in surplus of Rs 52,214 crore in 2018-19, which was 10 per cent higher than the preceding year. Despite competition from the private sector, LIC is rock steady in the market.

When quizzed about the surprise budget announcement, LIC chief Kumar said he was not entirely surprised. "The listing has often been talked about in the past," said Kumar. He also elaborated on certain legislative changes that will have to be implemented. "We have no control over it," he said. For one, the LIC Act will have to be amended by the Parliament. These amendments will be in the area of payment of dividend, sovereign guarantee and the status of the LIC as a corporation.

Source: Business Today