“There will be no impact on policyholders or employees if the company goes public,” Chairman M R Kumar told journalists in a specially-convened press conference. The insurance major is not known to be media-savvy in its normal course of operation.
The press conference was seen as a bid to assure its employees amid reports of dissention, protests and plans for agitation to oppose the move for government share sale. The insurance behemoth had 1,11,979 employees on the rolls as of March, 2019.
There are media reports that various unions of LIC across the country have started preparation for agitations and protests to lodge protest against the government’s Budget proposal to divest part of its stake.
Finance Minister Nirmala Sithamraman last week unveiled plans for next financial year’s IPO, which is going to be a key component in the government Rs 2.1 lakh crore revenue target to be raised from sale of public assets and equity holdings in various public sector enterprises.
Unofficial estimates show a 10% stake sale in the insurer may fetch the government anywhere around Rs 80,000 crore. Kumar, though, refused to give a number for projected valuation.
“It is difficult to comment on the valuation of the company. We haven’t done the math on valuation. We have to work it out. I can’t put a time to it,” he said.
The IPO will require an amendment by Parliament to the Life Insurance Corporation Act, 1956.
LIC is also looking to sell down its 51 per cent stake in IDBI Bank well ahead of the RBI mandated 12-year timeline as it believes that the valuation of the lender could rise with the government’s sale of stake, leading to a possible entry of a private equity investors.
“We will have to find some way of unlocking value from IDBI,” Kumar told reporters.
LIC’s composite market share in terms of the number of policies and first year premium as of January 31 stood at 77.61% and 70.02%, respectively.
Earlier this week, a government official said the government would soon set up an inter-ministerial group to look at the listing of LIC. He said the stake dilution is unlikely to be more than 10 per cent. Kumar, however, said LIC has yet to started any work on the proposed public float, and details were yet to be worked out.
An inter-ministerial mechanism formed among department of financial services, Department of Investment and Public Asset Management (DIPAM) and law will work on various parameters of the IPO, Finance Secretary Rajiv Kumar said last week, adding that the government was aiming to float the IPO in the second half of FY21.
Equity analysts say a new government income-tax proposal that offers taxpayers to pay lower income tax should they give up all the tax exemptions available on various investment and savings products may make it tough for LIC and other insurers to sell products, as tax benefits used to be a big push factor for taxpayers to buy insurance earlier.
This, they said, may hurt prospective valuation of LIC.
Kumar disagreed with that view, saying the state-run insurer would not be affected by the proposal. “I don’t think people invest in LIC policies for tax benefits. So, 80C Income-Tax exemption going away will not impact us,” he said.
The Budget proposal to do away with a dividend distribution tax is also seen as another blow for domestic insurers and asset managers. Under the new law, dividend income from shares and MFs will be now become taxable in the hands of the recipient — instead of the company or fund house — at applicable income-tax rates.
Insurers enjoyed tax benefits on dividend income received on policyholder investments. The effective tax rate for them was, thus, lower than the corporate tax rate. With dividend income no longer tax-exempt, analysts expect margins and embedded value (EV) to take a hit. The moves had sent the stocks of listed life insurers sharply lower.
“It is too early to comment on the extent of impact from DDT going away,” Kumar said. So far this financial year, LIC has sold around 1.96 crore policies and covered 1.84 crore lives. Total assets of the corporation stood at Rs 32,25,905.42 crore as at September 30.
