The Securities and Exchange Board of India (SEBI) has eased public issue norms for large entities, making it easier for the government to sell a part of its stake in Life Insurance Corporation (LIC) through a mega initial public offering (IPO).

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The government’s plan to sell the stake in the country’s largest insurer has been marked by complications given the sheer size of the state-run company. To put things in perspective, just a 10 percent share sale to the public is pegged to be at least Rs 1 lakh crore, which will be tough for the market to absorb.

The move by SEBI on Wednesday to ease the minimum offer and public holding norms will allow the government more time to abide by rules. As per the new norms now, for any company with a post-issue market capital of above Rs 1 lakh crore, the IPO size will have to be Rs 10,000 crore plus 5 percent of the incremental market capitalisation amount.

Currently, companies with a post-issue market value of Rs 4,000 crore or above are required to offer a minimum of 10 percent of their capital to the public in an IPO. Within three years from the listing date, such issuers must also achieve a minimum public shareholding of at least 25 percent.

However, now, SEBI has said that companies with a size of more than Rs 1 lakh crore will have to achieve at least 10 percent public shareholding in two years and target 25 percent within five years since the listing date.

With this relaxation, LIC, which is presently being evaluated by actuarial firms and getting ready for its IPO, will benefit the most.

During the 2021-22 Union budget announcement on February 1, Finance Minister Nirmala Sitharaman had proposed amendment to the LIC Act and bring rules for the insurer under the Companies Act to help it steer clear of regulatory hurdles during the IPO launch. LIC, in which the government has 95 percent stake, has assets valued over Rs 34 lakh crore.

Sitharaman had said that the Central government will hold a minimum of 75 percent in LIC for the first five years since the IPO launch and then come down to 51 percent at all times.

In the April to December period last year, LIC logged new business premium of Rs 1.3 lakh crore, an amount which is more than double the total premium collected by all private life insurers together.

As of now, LIC pays 5 percent of its surplus to the government, with the rest going to policyholders. Private insurance companies, on the other hand, pay 10 percent of the surplus to shareholders, keeping the remaining for policyholders.

(Edited by : Yashi)

First Published:Feb 18, 2021 3:05 PM IST