What does the country's largest IPO of LIC mean for investors and govt?

After two years of preparation, the govt on Sunday approached SEBI to sell 5% stake in Life Insurance Corporation through Initial Public Offering. It expects to collect Rs 60,000 cr through this move

LIC IPO: Dubbed as the country’s Aramco moment, the Initial Public Offering of Life Insurance Corporation of India has moved a step The issue is set to dwarf the record $2.4 billion IPO of Paytm last year. Created by the merger and nationalisation of 245 Indian and foreign insurers and provident societies in 1956, LIC has been a household name in India for decades now.Here are key things you should know about the impending IPO Text on screen - How big is LICLIC is India’s biggest life insurer with 286 million policies, 115,000 employees, 1.34 million individual agents and more than 2000 branches. It has a 64.1% market share in terms of premium and a 66.2% market share in terms of new business premium.It manages $528 billion of assets, more than the total size of India’s mutual fund industry and 3.3 times more than the total Assets Under Management of all 23 private life insurance companies.At about $130 billion, LIC’s investments in listed equity represents around 4% of the total market capitalisation of NSE. Text on screen - What is on offer?The government, which owns 100% of LIC, is selling 316 million shares, representing 5% of its equity stake through the IPO. The issue is a 100% offer-for-sale, meaning LIC will not receive any proceeds from it.10% of the IPO size reserved for policyholders, while employee quota has been capped at 5%.9LIC’s dominance is unparalleled globally with no other life insurance player in any country enjoying such high market share. LIC is ranked fifth globally in terms of life insurance premium and tenth in terms of total assets. It is the only Indian player among the top global insurers.The draft prospectus has put LIC’s embedded value at $71.3 billion. The embedded value is a measure of future cash flows in life insurance companies and a key financial metric for insurers.SBI Life Insurance, HDFC Life Insurance and ICICI Prudential Life Insurance are the only listed life insurers in India.HDFC Life has a market cap of $15.6 billion, four times its embedded value while SBI Life and ICICI Prudential Life have a market cap to embedded value ratio of 3.3 times and 2.4 times respectively.If LIC is valued at 4 times its embedded value, its market cap could be $285 billion, making it India’s most valuable company. A 5% stake at that valuation will fetch the government $14.25 billionIf ICICI Prudential Life’s multiple is taken, LIC could be valued at $171 .1 billion.

That would make it India’s third biggest company by market capitalisation and fetch the government nearly $8.6 billion in the IPO.LIC reported profit after tax of $199 million for the first six months of FY22. It collected premiums worth $24.6 billion during this period. Its gross and net non-performing asset ratios in the debt portfolio stand at 6.57% and 0.05%, respectively.LIC faces significant competition from private players. As a result it has been losing market share although it continues to be the largest life insurer.The gross written premiums for LIC increased by 6.30% in FY21, compared with 24% for SBI Life and 18% for HDFC Life. With the government raising the FDI limit in the insurance sector to 74% from 49% last year, there is an impending threat of foreign players entering the market and capturing market share.LIC’s policies are primarily distributed through agents. In FY21, individual agents were responsible for 93.8% of new business premium compared to less than 30% for private peers.LIC said it may be required to take certain actions to facilitate the government’s economic or policy objectives and there can be no assurance that such actions would necessarily be beneficial to the company.Further, LIC is involved in approximately 26,919 criminal, consumer, civil proceedings, tax proceedings and actions taken by statutory or regulatory authorities.The IPO filing has come at a time when a sell-off has gripped the Indian markets. The benchmark Nifty 50 index is down almost 10% from record high set in October 2021 after falling 3% on Monday.The current IPO record holder Paytm is trading 60% below its issue price. To drum up market participation amid tough conditions for an IPO of its size, LIC has embarked on an advertising blitz to encourage policyholders to open demat accounts.While the IPO will be seen as a test of investors’ appetite, the government is banking on the insurer’s brand value as it hopes for the market will absorb the mega issue.