Did LIC miss a golden opportunity to create another company with a market capitalization of $1 billion?

The country’s largest IPO – Rs 21,000 crore – is scheduled to open from LIC of India on May 4 at $902-949. After several days of speculation about a launch date since September last year, the initial public offering has finally seen the light of day. The issuance will be open to the public until May 9, while core investors can submit bids earlier, on May 2. Employees and retail investors will get a discount of INR 45 while policy holders will enjoy an even better discount of INR 60.

The price range puts the LIC valuation at $6-lakh crores. However, the insurance giant missed a golden opportunity to create another company with a market capitalization of $1 billion besides launching an IPO.

LIC’s advt

Due to the turmoil in the stock markets in recent months (global and domestic), the IPO volume was reduced to ₹21,000 crore, with the government reducing its stake to 3.5 per cent from the previous 5 per cent. The initial proposal was to raise a minimum of Rs 65,000 crore by withdrawing the LIC investment.

Once the central government started the life insurance company divestment process, the major insurance company launched several advertisements across various channels – including newspapers, FM radio and social media. LIC advised its policyholders to open a demat account to participate in the proposed public offering.

One newspaper said: “If you are a LIC policy holder and wish to participate in an initial public offering (IPO) proposed by an insurance company, you need to ensure that your PAN details are updated in the LIC records and you need to have a demat account.

CDSL – Principal Recipient

The results from the ads were phenomenal. The biggest beneficiary has been Central Depository Services (India). The number of demat accounts crossed the Rs 6 crore mark on February 28, which is the closing date for policyholders to become eligible to receive shares under the stake.

Over the past year alone, the figure has nearly doubled to Rs.6.3 crore as of end-March 2022 from Rs.3.31 crore debit accounts in March 2021. Without a doubt, LIC has been a major contributor to this jump.

The growth in the other depository – the National Securities Depository Company – was not significant; The numbers are currently hovering around the Rs 2.6 crore demat account.

Rahul Jain, Director of Investment and Public Asset Management (DIPAM) at the Ministry of Finance recently said: “The response to our IPO launch is fantastic. We have some numbers – policy holders have linked their Rs 6.48 crore PAN to the policy details up to the closing date (Feb 28, 2022). )”.

CDSL m-cap height

This growth was also reflected in CDSL’s share price. From Rs 655 as of March 31, 2021, the stock has doubled to its current level of Rs 1,400. The NSE-listed company is now asking for a market cap of INR 14.61 crore. CDSL launched a private initial public offering of ₹524 crore in 2017 at an initial public offering price of Rs 149.

Had LIC launched its own repository, the majority of these benefits could have accrued to itself. It was also not difficult to launch the deposit service due to LIC’s technical and financial strength.

Such a service would have easily gained at least one crore account, adding to the much-needed competition in the deposit space.

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April 29, 2022

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