Home / Markets / Stock Markets /  How Sebi bent rules to help list LIC
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Mumbai: It takes a village to raise a child. This fits perfectly in the case of the public listing of insurance behemoth Life Insurance Corp of India (LIC). The entire ecosystem of regulators, government, and merchant bankers came forward to ensure the IPO, India's biggest till date, sees the light of the day.

From merchant bankers willing to work at a base fee of 1 crore to the Securities and Exchange Board of India (Sebi) willing to change its rules, every stakeholder went out of its way to ensure LIC’s public offer.

As the LIC IPO opens Wednesday, Mint spoke to lawyers and analysts who said that Sebi bent backwards and gave a lot of exemptions to smoothen the initial public offering (IPO) process for the largest life insurer of the country. Something which the regulator rarely or rather never does for private sector companies.

Sebi relented on three to four major grounds -- size of the IPO, valuation being cut in half, anchor investor lock-in and refiling of papers.

As a prevalent norm before February 2021 companies had to divest at least 10% in a public offer. The norms were revised for companies that have a market capitalization of more than 1 lakh crore at the time of listing to 5% of their shares.

This amendment was made bearing LIC in mind, since the government believed the market would not be able to absorb the entire offer.

LIC was all set to divest 5-7%. But then the government decided to divest a 3.5% stake. Which the market regulator readily allowed.

Sebi in December 2021 had announced that the present 30-day lock-in period will be maintained for 50% of the portion allotted to anchor investors, while the remaining half will be subject to a 90-day lock-in period starting 1 April.

But Sebi changed it in just a nick of time to attract more institutional investors. How? By making the lock-in rules applicable after 30 June.

A partner at a leading law firm said that Sebi has made an exception for LIC from refiling IPO papers.

In case of a normal IPO without a greenshoe option in case Offer For Sale, if the shares on offer changes by 50% a fresh DRHP typically needs to be filed.

“If there is any change beyond 50% in the number of shares on offer it certainly needs a new refiling in terms of the financial position or other significant factors. A fresh DRHP needs to be filed," said the partner.

“Here they have changed divestment to 3.5% from 5% earlier. Principally, this is a 50% change which is why a fresh filing was required as per Sebi regulations. Generally the exemption would not have been provided to anyone (other company). The current OFS comprises 22 crores shares on offer from the 31 crores shares earlier. From a value perspective the amount of funds that were expected to be raised , because of the volatility or the geopolitical uncertainty due to the Russia-Ukraine crisis has reduced. So ideally there should have been a refiling."

Additionally, Sebi is also expected to go easy on minimum public shareholding norms for LIC. Listed entities having valuation of over 1 lakh crore need to have at least 25% public shareholding within 5 years of listing.

Achieving a 25% public float looks like a mammoth task for the PSU due to which the finance ministry last week clarified that it will discuss with Sebi to exempt the life insurer from the minimum public shareholding norm.

Last week while addressing the media at the roadshows for the IPO, Tuhin Kant Pandey, DIPAM secretary had said that the government will have to discuss with Sebi and the economic affairs department the roadmap for minimum public shareholding. “It is not easy, even 5% at this point of time would not be acceptable to the market," he had said.

“Often we have seen in some PSUs (public sector undertaking), the norms for independent directors are not met while the 25% dilution has not taken place. There has hardly been any instance of insider trading detected or any penal action taken against any PSU. Including any LODR violation and many more. Even for takeover regulations there are extremely different sets of rules for PSU’s. Sebi bends backwards towards making rules convenient to PSUs," said Anil Choudhary, Partner, Finsec Law Advisors

LIC is one of the largest IPO issues seen in the capital markets recently. Government expects to raise around 21,000 crores through the offer, which will value the insurer at 6 lakh crores. The government is selling over 22.13 crore shares in LIC at a price band of 902-949.

As a result of the Russian invasion of Ukraine and continued selling by foreign investors the size of the IPO was reduced from 65,000 crore to 21,000 crore.

In February this year, the government changed foreign direct investment rules (FDI) to make room for foreign investors to invest in LIC.

An amendment was approved to permit FDI in the LIC up to, 20% under the automatic route. The previous policy did not have any specific provision for foreign investment in LIC.

However, despite the government changing the regulations in the insurance policy sector, there has not been much participation from foreign investors.

As per a stock exchange disclosure, LIC has garnered 5,627 crores from the anchor investors. As part of this, nearly 59.3 million shares were allotted to 123 anchor investors.

Government of Singapore, Government Pension Fund Global, BNP Investments LLC, Monetary Authority of Singapore, Societe Generale, Invesco India, and Saint Capital Fund were the marquee investors who participated in the anchor book, the filing showed. Nearly 70% of the anchor book portion came from domestic institutional investors.

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