Life Insurance Corporation of India is gearing up for India’s biggest IPO ever, with the Indian Government diluting its 5% stake in the company to raise more than Rs 60,000-70,000 crore. As part of the Government’s disinvestment target for the year, LIC’s IPO will see the government selling 31.6 crore shares, with the corporation being valued between Rs 12 lakh crore to Rs 15 lakh crore.
After the IPO, the Government will continue to retain the majority stake in LIC with other investors getting on board. The IPO will be open to Retail investors, Qualified Institutional Investors, Non-Institutional Investors, LIC policyholders, and anchor investors.
In this blog, we will explore what these categories are and what investors should keep in mind when applying for the LIC IPO.
In a bid to woo more investors to participate in its IPO, LIC announced sops for its policyholders. All individuals who own a valid LIC policy can apply for the IPO. LIC has reserved 10% of its IPO size for its staff and policyholders.
Both the policyholders and LIC staff will also be eligible for a discounted price in their application for the LIC IPO. However, there are a few things that LIC policyholders must keep in mind:
1. If you have a joint Demat account with your spouse, you will have to name the primary account holder’s name in the application.
2. The spouse of a deceased annuity policyholder cannot apply for LIC’s IPO.
3. The person holding LIC’s policy must have a Demat account in their name. Applications cannot be made from a spouse, parents, or other relative’s Demat account.
4. The policyholder reservation quota is not applicable for NRIs. Only resident Indians are eligible for the policyholder reservation quota. 5. Group policies do not qualify for the reservation or discount quota. 6. Nominees of LIC policies cannot use the reservation or the discount quota. Read How to Apply for LIC IPO as a Policyholder in detail
Retail investors include both resident Indians and non-resident Indians. These are non-professional investors. Reserving a portion of the IPO size for retail investors gives the general public a chance to participate in the IPO process. As per the SEBI norms, the minimum allocation for retail investors in any IPO is 35%. In India, retail investors can participate in IPOs where their bids do not cross the Rs 2 Iakh mark. Retail investors can bid at the cut off price and withdraw their application at any time.
As per LIC’s DRHP, 35% of the LIC IPO size has been reserved for retail investors. With this allocation, the Indian Government is also aiming to push non-professional investors to open a Demat account, which will lead to higher Securities Transaction Tax (STT) for the Government and increase the flow of capital in the Indian markets.
Qualified Institutional Investors (QII)
Qualified Institutional Investors are the commercial banks, financial institutions, mutual funds houses, and foreign portfolio investors that are SEBI registered. As per the SEBI mandate, a maximum of 50% of the IPO size can be allocated for QIIs and these investors can neither bid at the cut off price nor withdraw their applications.
In LIC’s DRHP, it has reserved 50% of its IPO size for QIIs. However, if there is a case of under-participation from anchor investors, the remaining portion may be allocated for QIIs. This is after consultation with the stock exchange and book running lead managers.
Non-Institutional Investors (NII)
Non-institutional investors are individuals or entities with a high net worth. And can invest over Rs 2 lakh in an IPO. Unlike QIIs, Nils need not register with SEBI to be eligible to participate in the IPO process. These investors are not allowed to bid at the cut off price but can withdraw their application a day before the allotment.
LIC has earmarked 15% of their IPO size for Nils. Also, read Things to Know Before Applying for LIC IPO
These are the QIIs who make applications to invest Rs 10 crore or more in a company’s IPO. SEBI allows IPO-bound companies to reserve up to 60% of their IPO size for anchor investors. The only caveat is that such investors cannot include the company’s promoters, merchant bankers, or their immediate relatives.
In its DRHP, LIC has mentioned three conditions for anchor investors looking to apply for LIC’s IPO:
1. If the anchor investor portion is up to Rs 10 crore, there can be a maximum of two anchor investors who can come together.
2. When anchor investor portion is between Rs 10 crore and Rs 250 crore, a minimum of two anchor investors and a maximum of 15 anchor investors can come together. With a minimum allotment of Rs 5 crore for anchor investors.
3. When the anchor investor portion is over Rs 250 crore, minimum of 5 anchor investors and a maximum of 15 anchor investors can come together. And an additional 10 anchor investors for every additional Rs 250 crore or part thereof will be permitted. This is subject to a minimum allotment of Rs 5 crore per anchor investor.
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