Govt. grants 20% FDI to Life Insurance Corporation of India

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Move will broaden the investor base for LIC’s IPO in choppy markets.

Move will broaden the investor base for LIC’s IPO in choppy markets.

The government on Saturday approved changes to India’s foreign direct investment (FDI) policy to allow global investors to participate in the initial public offering of shares of Life Insurance Corporation of India (LIC) which is expected to be launched soon.

Foreign investors will now be able to invest up to 20% in LIC shares under the automatic approval route, government sources said. FDI in insurance companies is already allowed up to 74% under the automatic approval procedure, but the policy was silent on foreign equity investments in the country’s largest insurer, LIC, a company statute created by an Act of Parliament.

“As per the current FDI policy, the FDI cap for public sector banks is 20% on the way to government approval, so it has been decided to allow foreign investment up to 20% for LICs and other legal persons,” an official source said. adding that the approval has been made automatic for LIC investors to expedite the capital raising plan.

The FDI policy changes come less than two weeks after the draft diversionary prospectus (DRHP) for the sale of LIC shares was filed with the securities regulator. The government is offloading 5% of its stake in LIC, with up to 10% of these shares being reserved for LIC policyholders and an additional 5% for employees.

The government is keen to complete the listing process of LIC, which has an intrinsic value of ₹5.4 lakh crore, before the end of the financial year, as the proceeds from the sale of shares are essential to achieve the target divestment for the year, revised down from ₹1.75 lakh crore to ₹78,000 crore.

Although markets have become choppy since LIC’s DRHP filing, Finance Minister Nirmala Sitharaman had indicated earlier this week that the government would go ahead with the IPO.

“On whether the market condition is right for LIC (listing), if it’s good for LIC, it’s good for everyone. If there are headwinds for LIC, those are also headwinds for the rest,” she said on Tuesday, adding that volatility in financial markets had been triggered by developments abroad such as the Ukraine crisis.

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