Initial Public Offer: LIC

• 23 Jun 2020

Why in News

The Central government has started the process to launch the Initial Public Offer (IPO) of Life Insurance Corporation (LIC).

• LIC is fully owned by the government. It was set up in 1956.
• It has the biggest share in India’s insurance business.

Initial Public Offer

• IPO is the selling of securities to the public in the primary market (a type of capital market).
  
  • Primary market deals with new securities being issued for the first time. It is also known as the new issues market.
  • It is different from the secondary market where existing securities are bought and sold. It is also known as the stock market or stock exchange.
• Under IPO, an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.
  
  • Through an IPO, an unlisted company can get listed on the stock exchange.
• It is generally used by new and medium-sized firms that are looking for funds to grow and expand their business.

Key Points

• LIC IPO:
  
  • The IPO is expected to be the biggest in the Indian capital markets given the size and scale of LIC.
  • The LIC’s total assets had touched an all-time high of Rs. 31.11 lakh crore in 2018-19.
  • The government is seeking some exemption related to the LIC IPO from the Securities and Exchange Board of India (SEBI).
• Benefit:
  
  • It will help the government to meet its rising fiscal deficit.
    
    • The rating agency S&P has estimated India’s government (centre and states) fiscal deficit to rise to 11% of GDP in FY21 from 7.8% in FY20.
  • An IPO will bring transparency into affairs of LIC since it will be required to inform its value and other market-related developments on time to the stock exchanges.
  • It also gives an opportunity for retail investors to participate in the wealth creation of LIC.
  • Listing of companies on stock exchanges disciplines the company since it comes under greater scrutiny. It also provides access to financial markets, thus raising the company’s value.
• Issues Involved:
  
  • LIC is currently dealing with huge non-performing assets.
• Background:
  
  • In the Budget 2020-21, the government had announced plans for IPO of LIC and a proposal to sell the government’s equity in the stressed IDBI Bank to private, retail and institutional investors through the stock exchange.
    
    • LIC is also a majority shareholder in IDBI Bank.
  • The government expects to raise Rs. 90,000 crore through stake sale in LIC and IDBI Bank, and another Rs. 1.2 lakh crore through other disinvestments.
  • Earlier, in 2017, the government had listed the shares of General Insurance Corporation and New India Assurance through IPOs.

Source: IE