Government bound to infuse capital into LIC before IPO
Mumbai: Along with amending the Life Insurance Corporation Act, the government stood bound to infuse capital into the PSU giant before its IPO. Because of the corporation’s paid-up capital remained only Rs 100 crores. Hence, this might not exist enough for a public flotation.
Generally, the conservative estimate values LIC at around Rs 10 lakh crores. So then, if the valuation comes closer to that of another public sector. Namely, life insurer SBI life, it might stay around Rs 18 lakh crores. However, even if the shares remain split to give the worth of Re 1 each, it would remain valued at Rs 10,000 in the market. Hence, to create the required liquidity in the corporation’s stock, the govt. might have to expand the capital base of Rs 10,000 crores.
Despite this, the union budget has not made any provision for capitalizing LIC. However, it has made a provision of Rs 6,950 crores capital infusion for three public sector non-life insurance firms. Namely, National Insurance, Oriental Insurance, and United India Insurance.
However, for regular companies, there always exists an option to capitalize on reserves. While in the case of LIC, its surplus remained distributed. So then, it was given to the policyholders and the government in the ratio of 95:5. Yet, LIC does have large reserves to meet solvency margin requirements.