LIC IPO: Centre amends FEMA rules to allow 20% FDI in insurance giant

Paving the way for up to 20% foreign direct investment
(FDI) in the insurance giant Life Insurance Corporation of India (LIC), the
government has amended the rules of the Foreign Exchange Management Act (FEMA).
The government is planning to sell its stake in LIC through an initial public
offering (IPO). In February, LIC filed the Draft Red Herring Prospectus (DRHP)
before the Securities Exchange Board of India (SEBI) for the IPO. SEBI approved
the draft papers in March, and LIC is filing a request for a proposal with
changes.

Also Read | LIC IPO: Government files updated DRHP with results

After the Cabinet approval, the Department for Promotion
of Industry and Internal Trade (DPIIT) on March 14 amended the Foreign Direct
Investment (FDI) policy to facilitate foreign investment in LIC ahead of the
mega public offer, reported PTI.

FEMA notification was required to implement the
provisions DPIIT issued through a press release, including changes to FDI
policy that will allow foreign portfolio investors to subscribe to shares of
LIC.

Also Read | LIC IPO: Ukraine crisis likely to impact foreign investor interest

“These rules may be called the Foreign Exchange Management
(Non-debt Instruments) (Amendment) Rules, 2022,” said recent gazette
notification. The notification has added a paragraph in the existing policy,
allowing up to 20% FDI in LIC through the automatic route.

Under current FDI policy, the foreign investment limit
for public sector banks is 20% with government approval route, now it has been
decided to allow foreign inflows of up to 20% in LIC and other such corporate
bodies, according to PTI.

Also Read | LIC IPO: here’s how policyholders can participate

“Foreign investment in LIC shall be subject to the
provisions of the Life Insurance Corporation Act, 1956, (LIC Act) as amended
from time to time and such provisions of the Insurance Act, 1938, as amended
from time to time, as applicable to LIC,” it said.

Paving the way for the country’s biggest-ever public
issue, SEBI has approved the draft prospectus for the sale of a 5% stake by the
government for an estimated Rs 63,000 crore.

Also Read | LIC world’s third strongest insurance brand: Brand Finance

According to DRHP, LIC’s embedded value has been
estimated at Rs 5.4 lakh crore as of September 20, 2021, by the international
actuarial firm Milliman Advisors.

However, the DRHP does not disclose the market valuation
of LIC but according to industry standards, it would be around three times the
embedded value or around Rs 16 lakh crore. Once listed, LIC’s market valuation
will compete with top firms like Reliance Industries and TCS.