LIC IPO– RULES STITCHED TO FIT

When the elephant comes, everything, all obstacles in its path have to be removed.

That’s how it is for LIC. What with an IPO in the offing in a few months from now in FY22, the Govt is going all-out to remove all impediments to be able to adhere to the SEBI rules for an IPO. Well, if LIC is not able to meet the rules, Govt will get SEBI to change the rules!

And that is precisely what happened yesterday. SEBI relaxed the Minimum Public Offer (MPO) requirement for large issuers with post issue market capitalisation exceeding Rs.1,00,000 crore. Various valuations have pegged LIC’s market cap at anywhere between Rs.10 lakh crore to Rs.12 lakh crore.

As per the newly amended rule, the MPO for large issuers has been reduced from 10% of post issue market capitalisation to Rs.10,000 crore + 5% of the incremental amount beyond Rs.1,00,000 crore.

This rule is but obvious for LIC as the Govt might be considering 5% stake sale and not 10-15% as earlier reports suggested. This is a move like that of Saudi’s Aramco where with a small stake sale, the Govt will continue to reserve the option of being only as transparent or open as stipulated.

Also, these issuers shall be required to achieve at least 10% public shareholding in 2-years and at least 25% within 5-years from the date of listing.

As per the existing rule, issuers with post IPO market cap of a minimum of Rs.4000 crore or more, the MPO is 10% of their post issue market cap and they were also required to achieve a MPO of at least 25% within 3-years from listing date.

The Govt is also bending quite a few rules to get this IPO going. To fast track the IPO, it has sought Parliament approval for amending the LIC Act. Once that legislature is passed, the Govt will be able to revamp LIC’s Board, get its books in order to meet SEBI’s regulations. The Govt will also pump in Rs.25,000 crore in paid-up capital.

Obviously, a lot hinges on this IPO as the Govt expects to raise a huge chunk of its divestment money from LIC alone.

And yes, this most certainly is good news for India’s best startup, Paytm, which was recently valued at a jaw dropping $1 billion. The company’s founder and CEO Vijay Shekhar Sharma did say that he was looking at an IPO and it could now be much sooner than later.

They say, tall mountains make their own weather and so do big companies.