Govt modifies Foreign Exchange Management Act rules to bring up to 20% FDI in LIC
To bring up to 20 per cent of Foreign Direct Investment (FDI) in LIC, the government recently amended the rules of the Foreign Exchange Management Act (FEMA). This happened at a time when the government is planning to dilute its stake in LIC via the Initial Public Offering (IPO). The Department for Promotion of Industry and Internal Trade (DPIIT) on March 14 amended the Foreign Direct Investment (FDI) policy to facilitate overseas investment in LIC ahead of its big IPO. The new changes will allow large foreign portfolio investors to subscribe to shares of LIC. The foreign investment in LIC will fall under the provisions of the Life Insurance Corporation Act, 1956, and the Insurance Act, 1938.
As part of the IPO, LIC had filed the Draft Red Herring Prospectus (DRHP) before the market regulator Sebi in February. Following that, in March, Sebi approved the draft prospectus for the sale of a 5 per cent stake by the government for an estimated Rs 63,000 crore. Currently, the insurer is in the process of filing a request for a proposal with changes.
As per the draft paper, LIC’s embedded value is about Rs 5.4 lakh crore as of September 30, 2021. Hence, the market valuation of LIC as per industry standards would be about three times the embedded value. LIC’s IPO, which is pegged as the biggest IPO in the history of the Indian Stock Market, will be comparable to top companies like RIL and TCS once it gets listed. As of now, Paytm holds the title of largest-ever IPO with an amount of Rs 18,000 crore. Paytm’s IPO was held in 2021.
