The Life Insurance Corporation of India (LIC) will be inviting anchor investors to raise Rs 25,000 crore for its IPO. The Central government is planning on bringing in at least two dozen anchor investors, reported the Mint.

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Anchor investors are qualified institutional buyers who buy shares of the company at a pre-set rate by investing at least Rs 10 crore in the company. Anchor investors are brought in to measure market demand for the IPO as well as to boost the confidence of other investors.

According to SEBI regulations, only 50 percent of the shares in an IPO can be offered to QIBs. Of that number, only 60 percent of shares can be given to anchor investors.

“Anchor investors will buy LIC’s shares to help measure market demand. They will buy a portion of the shares meant for qualified institutional buyers (QIBs). If anchor investors pay a certain amount and the market is ready to pay more than that on the day of IPO, the anchor investors will have to bring in the extra amount to match the market price. If the market shows a demand of less, we don’t have to refund the extra amount to anchor investors. This is the benefit of having anchor investors," a central government official told the Mint.

However, shares are allocated on a discretionary basis to anchor investors for IPOs above Rs 250 crore. The exact value of LIC’s IPO is not yet determined. The state insurer does hold assets worth Rs 34 lakh crore.

The mega-IPO has been delayed due to necessary amendments that needed to be made to LIC Act, its governance structure, its financial reporting structure and finalising the embedded valuation report. SEBI and the Central government have been easing the process for LIC’s IPO by bringing new rules and norms to the fore but the DHRP is only expected to be filed in 6 months.

(Edited by : Aditi Gautam)