The government has amended rules of the Foreign Exchange Management Act (FEMA), paving the way for up to 20 percent foreign direct investment in the insurance giant LIC. The government is planning to dilute its stake in LIC through the Initial Public Offering.
LIC in February had filed the Draft Red Herring Prospectus (DRHP) before the market regulator SEBI for the IPO. Last month, SEBI gave approval to the draft papers and the insurer is in the process of filing a request for proposal with changes.
According to the draft paper, LIC’s embedded value, a measure of the consolidated shareholders’ value in an insurance company, has been pegged at about Rs 5.4 lakh crore by international actuarial firm Milliman Advisors.
FEMA notification was required to initiate the provisions Department for Promotion of Industry and Internal Trade (DPIIT) issued, including FDI policy changes that will allow large foreign portfolio investors to subscribe to shares of LIC.
The notification has inserted a paragraph in the existing policy, allowing up to 20 percent FDI in LIC through the automatic route. Following the Cabinet approval, the DPIIT last month had amended the Foreign Direct Investment (FDI) policy to facilitate overseas investment in LIC ahead of the mega public offer.
Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around Rs 16 lakh crore. Once listed, LIC’s market valuation will be comparable to top companies like RIL and TCS
