The board of the Life Insurance Corporation of India (LIC) is due to meet here on Friday to discuss plans for an initial public offering, which almost certainly would be the largest in India's history.
Indian Prime Minister Narendra Modi has pledged many times to launch the IPO before the end of this fiscal year on March 31, but time is now running tight. The LIC, India's largest insurance company, would therefore likely need to file a prospectus this month to hit that timeframe.
The LIC is owned by the Indian Ministry of Finance. It was formed in 1956 when the government nationalized the life insurance industry following the collapse of a number of private insurers. At that time a total of 154 Indian insurers were combined into one entity, with 16 overseas operators in Indian life insurance and 75 provident societies.
The Indian government then privatized the entire insurance industry in 1973, only allowing private companies to offer coverage once again in 2000. LIC had a monopoly on life insurance alongside another state-owned operator, General Insurance Corp., which the government started operating in 1973.
The government has requested an expedited approvals process for an LIC floatation with the Securities and Exchange Board of India. The stock watchdog normally requires around 75 days to vet an IPO, which would see the March deadline slip. The government hopes the board can process the prospectus and offering in three weeks.
The Indian government is looking to privatization of government-owned entities as a big way of repairing a budget deficit. But in announcing the budget at the start of this month, it slashed its target for the privatization program for this fiscal year to 780 billion rupees (US$10.4 billion), down from 1.75 trillion rupees (US$23.2 billion). It also set a more modest target for next year of 650 billion rupees (US$8.6 billion).
For this year, the government intended to raise as much as 900 billion rupees (US$12.0 billion) by selling shares in the insurer. Because it so far has raised around 120 billion rupees (US$1.6 billion) through the sale of stakes in other companies, the reduction in the budget target for privatizations led some market watchers to predict that the LIC issuance will be downsized.
The government played down this possibility. It likely is looking to sell a stake of 5% to 10% in the insurer to the public. LIC is not expected to issue new shares in the offering, so the entire float would be being sold by the government.
The government must maintain a majority 51% stake in LIC by law, but it could sell off as much as 25% of its holding within the next five years, officials indicate.
After decades of failed attempts, the privatization of national carrier Air India was finally completed last month, with the Tata Group buying the airline for US$2.4 billion. Tata actually founded Air India in 1932 but the government took it over in 1953. The conglomerate will now need to turn the carrier around from persistent losses.
The LIC has a massive network in India, with 2,048 branches and another 1,381 satellite offices. It still dominates the life insurance market with a 65% market share thanks to its long-running monopoly on coverage, but has been losing ground to private competitors.
It last reported total assets of 40.2 trillion rupees (US$534 billion). For the six months through September, it generated 14.3 billion rupees (US$190.8 million) in after-tax profit and issued 18.6 billion rupees in premiums, although profits recently have been driven by the direction of investment returns.
The government has appointed 10 investment banks to work on the pending privatization, including Citigroup (C) and Goldman Sachs (GS) .
Paytm and its parent One 97 Communications (NSE:PAYTM) hold the record for the largest Indian IPO, at US$2.5 billion. It does not help that the e-payments company's shares are trading 57% below their offer price of 2,150 rupees.
