LIC stake sale kicks off: Who benefits?

The stake sale is aimed at helping LIC move closer to meeting the minimum public shareholding (MPS) requirement laid down by the Sebi.

In Short

• Government starts selling 2.5% LIC stake via Offer for Sale (OFS)
• Sale aims to meet Sebi's minimum public shareholding norms
• OFS opened for non-retail on August 4, retail on August 5

The government has begun selling a part of its stake in Life Insurance Corporation of India (LIC) through an Offer for Sale (OFS). While the move is aimed at meeting regulatory requirements, it will also help the Centre raise funds and increase the number of LIC shares available for public investors.

The OFS opened for non-retail investors on August 4, while retail investors can bid on August 5.

WHAT IS THE GOVERNMENT OFFERING?

The government plans to sell a 2.5% stake in LIC through the OFS, with an option to sell an additional 4% under the greenshoe option if there is strong demand. Here, it must be mentioned that a greenshoe option allows the seller to offer additional shares over and above the original issue in case of high demand.

The floor price for the issue has been fixed at Rs 382 per share. At present, the government owns 96.5% of LIC, while public shareholders hold the remaining 3.5%.

WHY IS THE STAKE SALE IMPORTANT?

The stake sale is aimed at helping LIC move closer to meeting the minimum public shareholding (MPS) requirement laid down by the Securities and Exchange Board of India (Sebi).

If the entire offer, including the greenshoe option, is subscribed, the government's holding in LIC will come down to 90%, while public shareholding will increase.

A higher public shareholding could also improve trading liquidity in LIC shares and strengthen the insurer's chances of being included in passive market indices in future.

WHO WILL BENEFIT?

The biggest beneficiary of the stake sale will be the government.

By selling a part of its holding, the Centre will raise money through the OFS while continuing to remain LIC's largest shareholder. The government has also said that the disinvestment will help it achieve the minimum public shareholding milestones ahead of schedule.

Public investors could benefit in the long run if the stock performs well after the stake sale, leading to higher returns on their investment.

Meanwhile, at the time of writing, LIC shares were down by 8.90% after the OFS opened for non-retail investors.

- Ends