Govt Allows 20 Percent FDI in LIC Ahead of IPO

The LIC is the second-largest fund manager in the world, but it is still dwarfed by the likes of Vanguard and Blackrock. The public issue will allow it to grow faster so that one day, its market value will be comparable to top companies like RIL and TCS.

The government has amended rules of the Foreign Exchange Management Act (FEMA), paving the way for foreign investment up to 20 percent in the insurance behemoth LIC. As part of this move, global players will now be able to invest in Indian businesses and benefit from new opportunities and growth prospects. At present, it is estimated that China-based companies have a 25 percent investment in LIC.

Last month, the Securities and Exchange Board of India (Sebi) cleared the way for 81% of state-owned Life Insurance Corporation (LIC) to open its books to global investors ahead of an impending public float. It did so by approving Sebi’s draft papers after weeks of deliberation and several meetings between the regulator and other stakeholders including potential investors.

FEMA notification was required to operationalize the provisions DPIIT issued through a press note, including FDI policy changes that will allow large foreign portfolio investors to subscribe to shares of LIC. The notification allows up to 20 percent foreign direct investment (FDI) in listed life insurance companies through the Automatic Route. Since the government has previously set a ceiling of 20% foreign direct investment in public sector banks, it's decided to allow up to 20% foreign investment in state-owned companies that are not previously allowed.

"Foreign investment in LIC shall be subject to the provisions of the Life Insurance Corporation Act, 1956, (LIC Act) as amended from time to time and such provisions of the Insurance Act, 1938, as amended from time to time, as are applicable to LIC," it said.

Setting the stage for the country's biggest-ever public offering, the Securities and Exchange Board of India (Sebi) has approved the draft prospectus for the sale of a 5 percent stake by the government for an estimated Rs.63,000crore.

The IPO of Paytm (an online payment company) in 2021 (was the most successful IPO so far; it) mobilized Rs.18,300crore, followed by Coal India and Reliance Power's IPOs in 2010. Each was more successful than the other as regards their rendezvous with IPOs. So far, the most successful IPOs have raised over Rs.11,700crore from the market.

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