Initial Public Offer: LIC

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