LIC IPO: Centre allows 20% FDI under automatic route

To ensure maximum participation in the country’s biggest-ever public offering, the Department for Promotion of Industry and Internal Trade (DPIIT) has tweaked rules to allow up to 20% foreign direct investment (FDI) in the intial public issue of Life Insurance Corporation of India (LIC). The government has made amendment in non-debt instrument norms under the Foreign Exchange Management Act (FEMA) to pave way for 20% FDI in IPO-bound LIC under automatic route.

As per the current FDI policy, 74% foreign investment is allowed under the automatic route in the insurance sector. However, these rules do not apply to the LIC since it is a special entity created by the Parliament.

In a notification dated April 14, 2022, the finance ministry mentioned that the central government had made further amendment in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, allowing up to 20% FDI in LIC through the automatic route. Foreign investment in LIC shall be guided by Life Insurance Act, 1956 as amended from time to time and such provisions of the Insurance Act, 1938, the notification states.

Last month, the Union Cabinet had approved the decision on FDI in LIC to facilitate disinvestment of the insurance behemoth. The amendment would allow foreign direct investors to acquire up to 20% equity stake in LIC of India via an automatic route.

LIC on February 13 filed draft red herring prospectus (DRHP) with capital market regulator SEBI for the sale of 5% stake by the government for an estimated ₹63,000 crore. It again filed an updated offer document with SEBI, which was approved on March 21. The DRHP does not disclose the market valuation of LIC.

LIC has time till May 12 to float the LIC IPO, following which SEBI's approval to issue a public offer will cease. If the deadline passes and LIC fails to launch the IPO by May 12, it'll have to again follow the process to file DRHP to seek SEBI's approval.

LIC's IPO, which was originally planned to be launched in March, was primarily delayed after Russia invaded Ukraine, which turned stock markets volatile.

As per market sources, as many as 45 Indian companies, including LIC, have stalled their plans to raise funds through IPO, which were worth over ₹1.3 lakh crore. The big IPOs that are put on back-burner due to Ukraine crisis include Delhivery, PharmEasy, Emcure Pharma, Sterlite Power Transmission, Five Star Business, JK Files and Engineering, One Mobikwik Systems, Popular Vehicle and Services, Medanta, Healthium, Godavari Biorefineries, Keventer Agro, and Paradeep Phospates, amongst others.

Given the improvement in market situation, the government is likely to soon take a call on the issue. DIPAM secretary Tuhin Kanta Pandey had recently exuded confidence that the IPO will be floated soon.

“We may be good to go and we are watching the market situation. Hopefully, we should be able to bring out the IPO soon,” said Pandey at an interaction organised by the Merchants' Chamber of Commerce and Industry.