LIC IPO: Government invites bids for transaction advisors

The government has invited bids to appoint two pre-IPO transaction advisors for the proposed initial public offering (IPO) of Life Insurance Corporation of India (LIC).

It is likely that the government would sell around 8-10 percent stake in LIC through the listing process.

LIC is valued between Rs 9-10 lakh crore. Hence, even an 8 percent stake sale by the government could mean an IPO worth Rs 80,000-90,000 crore. Considering the size of the issue, two advisors will be appointed and it is likely that it could be the biggest-ever IPO seen in India.

Considering the size of LIC, it is likely that the initial expectation of an FY21 IPO could be tough to achieve. The coronavirus outbreak has also led to further economic uncertainty. As per the tender documents, the advisor has to engage with the government to decide on the modalities and the timing of the minority stake sale in LIC through IPO and submit a detailed operational scheme and also indicate tentative timelines for this process.

In the budget speech on February 1, 2020, finance minister Nirmala Sitharaman had announced a divestment of the government stake in LIC through an IPO. Currently, the government holds 100 percent stake in the life insurer.

To be eligible for bidding, the firm must be a professional consulting firm/investment banker/ merchant banker/financial institution having at least three years experience in IPO advisory services/M&A/disinvestment/strategic sale or private equity transactions. Further, the government in its tender document also said the bidder should have advised, handled, and completed at least one transaction of IPO of a size of Rs 5000 crore between April 1, 2017, to March 31, 2020, or should have managed a capital market transaction of Rs 15,000 crore or more during this period.

The tender documents showed that firms who have handled a life insurance IPO in India and/or abroad would be given a higher weightage in the bidding process.

Once a bidder is appointed, the firm has to sign a non-disclosure agreement with LIC for the proposed transaction. The last date to submit the bids online on the e-procurement system of the government is July 13.

LIC has been in the life insurance business since 1956. Its balance sheet size exceeds Rs 31 lakh crore. Its total investments in debt and equity exceed Rs 25 lakh crore. The task for the bankers would be to scrutinise all the minute details of these investments while arriving at a valuation. Further, the real estate assets of LIC will also be part of the valuation process.

Source: Money Control