The government has filed a draft prospectus with the capital markets regulator for Life Insurance Corporation of India’s initial public offer through which it aims to sell at least 5 percent stake in the life insurer.
LIC’s embedded value as on September 30, 2021 has been estimated at 5.39 lakh crore. Currently, private insurance companies trade at a multiple of 3-4 times embedded value. However, embedded value is only an estimation of value based on several assumptions and the multiple attributed to an insurer could vary based on several qualitative factors. A range of embedded value multiple between 2-3.5 throws up a valuation for the corporation ranging from Rs 10.7 lakh crore to Rs 18.7 lakh crore. Based on the total equity capital of 632 crore share, the issue size for a 5% offer for sale works out to Rs 53,500 crore to Rs 93,625 crore. The per share price thus works out to Rs 1693 to Rs 2962. Against this, the government’s average cost of acquisition of shares stood at Rs 0.16 as LIC went through a capital rejig ahead of the IPO.
LIC’s initial capital, when it was incorporated, was Rs 100 crore. Since LIC was a collective, and not envisaged as a public limited company, there were no shares allotted. To transform the corporation into a corporate structure with shareholders ahead of the public issue, the original capital of Rs 100 crore infused by the government during the inception of the corporation was converted into share capital by allotting shares of face value Rs 10 for an equivalent amount.