Life Insurance Corporation LIC has kicked off the process of holding its 25 crore policyholders to open demat accounts for applying to its mega IPO, which is due to debut in the fourth quarter of this year.
If it works, the policyholders' participation is going to expand the capital market. "We have 6 crore demat accounts and 25 crore customers," said MR Kumar, chairman of LIC to BusinessToday. There are around 8.85 crore demat accounts registered as per the BSE website, which also includes inactive or dormant accounts. There was a big jump in investor population after the Pandemic. The market has seen an additional 1.5 -- 2 crore new investors in the last two years.
LIC's 25 crore policyholders have demat accounts, which will help in increasing the investors' base by a few crores. Many of them are in Tier 2 and Tier 3 cities and may not be interested, but there is a lot of investors out there who are our policyholders, 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 see a huge surge in investors from retail to institutional.
The procedure to open a demat account has been detailed by the corporation in the papers. The policyholders who are also going to bear the demat costs, such as account opening and annual maintenance costs, will be at the sole discretion of the policyholders.
The amendment in the LIC Act 1956 was passed by the government to allow 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 policyholders.
Kumar said that they want to give back to the policyholders who have been faithful and loyal to us for quite a long time.
It is not known whether or not the IPO will offer policyholders a discount. But that is something we have to talk to and get approvals, said Kumar.
There is no guidelines as such for customers or policyholders, while there are Sebi guidelines for employees for giving shares at a discount.
The market is waiting for LIC to announce its embedded value EV, which is the current value of future cash flows plus net worth.
The multiple of 3-5 times enjoyed by the private players may or may not be applicable to LIC due to the fact that the LIC's EV is around USD $150 billion, or 11.25 lakh crore. There are negatives like product mix skewed towards savings, protection, high-cost agents structure, lender of last resort for government, etc. 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.
99% of the population is a 99% chance of this happening.