Life Insurance Corporation (LIC) has kicked off the process of hand holding its 25 crore policyholders to open demat accounts for applying to its mega IPO, which is slated for debut in the fourth quarter of this year.
“If it really works, the policyholders’ participation is going to expand the capital market. We have 6 crore demat accounts today and 25 crore customers,” said MR Kumar, chairman of LIC to BusinessToday.In in a recent interview.
Currently, there are around 8.85 crore demat accounts registered as per the BSE website, which also includes inactive or dormant accounts. But there has been a big jump in the investor population post the pandemic. The market has seen an additional 1.5-2 crore new investors in the last two years.
Clearly, amid LIC’s 25 crore policyholders some will surely have demat accounts, which will help in increasing the investors’ base by a few crores. “You can easily see the gap there. I know many of them are in Tier-2 and Tier-3 cities and they may not be interested but still, there is quite a substantial number of investors out there who are our policyholders today,” said Kumar.
The public listing is likely to see LIC rubbing shoulders with RILs, TCSes, and HDFCs of the world in terms of market capitalisation. The corporation with brand equity is expected to witness a huge surge in investors from retail to institutional.
The corporation has put out an advertisement in the papers detailing the steps needed to open a demat account. This, however, will be at the sole discretion of the policyholders, who are also going to bear the demat costs, especially account opening and annual maintenance costs.
The government has already passed an amendment in the LIC Act 1956 to permit the LIC to make a reservation on a competitive basis, in favor of policyholders. There are speculations that LIC will reserve 10 per cent of the issue size for the policyholders.
“We also want to give back to the policyholders who have been faithful and loyal for quite a long time with us and it will help them also,” said Kumar.
It is not known whether the IPO offering to policyholders would be at a discount. “That could be most likely. But that is something we have to talk to and get the approvals, “said Kumar.
Currently, there are no guidelines as such for customers or policyholders while there are Sebi guidelines for employees for giving shares at a discount.
The market is still waiting for LIC to announce its embedded value (EV) , which is the current value of the future cash flows plus the net worth.
There are unconfirmed reports that the LIC’s EV is around USD $150 billion (Rs 11.25 lakh crore). Since the market valuation is always over and above the EV, the multiple of 3-5 times enjoyed by the private players may or may not be applicable to LIC. There are negatives like product mix skewed towards savings, protection, high-cost agents structure, lender of last resort for government, etc. Similarly, there are positives like a market share of 60-70 per cent despite competition from over two dozen private players, size and scale, brand equity, subsidiaries in banking and housing finance, and the ability to transform into a digital player in the coming years.
Also read: LIC receives RBI approval to increase stake in Kotak Mahindra Bank to 9.99%
Also read: Will LIC make market debut at 3-5 times its embedded value as enjoyed by pvt sector life insurance companies?