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The Securities and Exchange Board of India (Sebi) on Wednesday relaxed public issue norms to make it easier for the government to sell a part of its stake in India’s largest insurer through a mega initial public offering.

The government’s plan to sell the stake in state-run Life Insurance Corp. of India (LIC) has been complicated by the size of the company. A mere 10% stake in the company is estimated to be at least 1 trillion, an amount that will be very tough for the market to absorb, said three people directly aware of the insurer’s IPO plans.

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Sebi’s Wednesday decision to ease the minimum offer and public holding norms will give the government more time to comply with the rules. According to the new norms, the IPO size is required to be 10,000 crore plus 5% of the incremental market capitalization amount beyond 1 trillion for very large companies.

At present, companies with a post-issue market value of 4,000 crore or more are required to offer at least 10% of the capital to the public in an IPO. Further, such issuers are required to achieve a minimum public shareholding of at least 25% within three years from the date of listing.

The markets regulator said companies with a size of over 1 trillion will now be required to achieve at least 10% public shareholding in two years and at least 25% within five years from the date of listing.

LIC, which is currently undergoing an evaluation process by actuarial firms, will be the biggest beneficiary of the relaxation by Sebi.

On 1 February, finance minister Nirmala Sitharaman, while announcing the Union budget, proposed to amend the LIC Act and bring the rules for LIC under the Companies Act to ensure the insurer does not face regulatory hurdles while launching its IPO. LIC, in which the government holds 95%, is the largest insurer in the country with assets worth more than 34 trillion.

The finance minister said the Centre will hold at least 75% in LIC for the first five years post the IPO, and subsequently hold at least 51% in the insurer at all times after five years of the proposed IPO.

LIC recorded new business premium of 1.3 trillion in the April-December period, more than double the total premium collected by all private life insurers together.

A public listing of LIC has been a protracted affair as it required amending the LIC Act. The insurer needed to change its audit and accounting policies; the way it distributes surpluses; and amend Sections 24, 28 and 37 of the Act.

Section 24 deals with the way the corporation handles its corpus; Section 28 is about dividend distribution norms; and Section 37 provides government guarantee on all its policies.

At present, LIC pays 5% of the surplus to the government, while the remaining 95% goes to its policyholders.

In comparison, private insurance companies pay 10% of surplus to shareholders and the rest goes to policyholders.

Section 24 explains how “the corporation shall have its own fund and all receipts of the corporation shall be credited thereto and all payments of the corporation shall be made therefrom".

LIC’s equity capital stands at 100 crore, which needed to be increased in order to sell even a 10% stake.

On 1 February, the finance minister proposed to increase the authorized share capital of LIC to 25,000 crore. The budget also proposed the way LIC’s board will be structured in accordance with the Companies Act.

LIC may make a reservation of up to 10% of the issue size in favour of its life insurance policyholders as one of the reserved categories in the proposed IPO, said the government.

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