SEBI Eased Norms of Minimum Public Offerings Ahead of Mega LIC IPO

Decks have been cleared for the government to come up with the much anticipated initial public offering (IPO) of the Life Insurance Corporation of India Ltd (LIC) with SEBI easing the minimum public offer norms.

The board of the Securities and Exchange Board of India (SEBI) has decided to recommend changes in regulations, and for issuers with post-issue market capital exceeding Rs 1 lakh crore, the requirement of minimum public offering (MPO) will be reduced from 10 per cent of post-issue market capital to Rs 10,000 crore along with 5 per cent of the incremental amount beyond Rs 1 lakh crore.

These issuers shall be required to achieve at least 10 per cent public shareholding in two years and at least 25 per cent public shareholding within five years from the date of listing.

Presently, in terms of Securities Contracts (Regulation) Rules, 1957 (SCRR), issuers with post issue market capital of at least Rs 4,000 crore or more, are required to offer to public at least 10 per cent of its post issue market capital -- Minimum Public Offer (MPO). Further, such issuers are also currently required to achieve a minimum public shareholding (MPS) of at least 25 per cent within three years from the date of listing.

Noting that LIC will be a major beneficiary of the change in norms, Rajeev R. Shah, Managing Director & CEO at RBSA Advisors LLP, said the valuation of LIC would be above Rs 9 lakh crore and under the prevailing listing rules, the requirement of the minimum public float was 10 per cent of post-issue market capital which translate into MPO of around Rs 90,000 crore.

"It is doubtful whether there is so much liquidity available in the market which can absorb such a large issue," he said.

Shah added that under the revised rules, for issuers with post-issue market capital exceeding Rs 1 lakh crore, the requirement of the minimum public float will be reduced and the changes will give the government, which owns 100 per cent of LIC, the flexibility to gauge markets to decide on the dilution.

Sonam Chandwani, Managing Partner at KS Legal & Associates, said that easing of IPO norms alters the country's public issue norms in a way that will make it easier for India's largest insurer, LIC to float its IPO with relatively less hurdles.

"The government's underlying intention is to dilute its stake in LIC in order to garner non tax revenues which could potentially reduce India's fiscal deficit," she said.

The IPO of the insurance giant is likely to be floated around Diwali this year.