The Hindu Business Line : LIC board adopts Deloitte report; IPO likely

ANOTHER mega initial public offer (IPO) of a state-run entity is quietly brewing in the financial sector cauldron - an equity offering by the Life Insurance Corporation of India (LIC).

In a move that would spark off a massive recast of the Indian insurance giant, including corporatisation and a large dose of recapitalisation by the Government in the run-up to a subsequent public offering, the LIC board of directors has adopted the restructuring report prepared by its consultants, Deloitte & Touche, Tomahatsu India.

The LIC Chairman, Mr S.B. Mathur, confirmed that the corporation has adopted the restructuring report of the consultants virtually in toto.

"The Deloitte report is futuristic and forward-looking. We have adopted it without much change," he told Business Line.

Mr Mathur also said that the report has already been forwarded to the Government for its consideration.While the details of the report are not available, Mr Mathur confirmed that among its major proposals was the corporatisation of the entity with an eye towards accessing the capital market to meet its future requirements.

"The Government might not be willing to continuously recapitalise LIC. The additional capital may have to come from other shareholders."

In between corporatisation and the IPO, LIC might have to seek recapitalisation from the Government to make the pricing of its shares attractive for public participation.

The recapitalisation would be required to dilute the earnings per share, since the miniscule paid-up capital of Rs 5 crore that the corporation operates with currently would result in abnormal pricing of its shares during a public float.

The other major suggestion in the consultants' report is that the sole public sector insurer in the country should not have the advantage of the backing of Government guarantee in order to create a level playing field with other private sector players.

Should the Government work towards this, the corporation would have to ensure that is has the paid-up capital and meets the solvency margins to back its operations that captures over 90 per cent of the Indian life insurance market.

LIC is already set to meet the solvency margins by March 31, 2004 by providing for an amount in excess of Rs 10,000 crore to back up operations since its inception.

However, the due to the comfort of a Government guarantee, the paid-up capital remains far below the mandatory minimum of Rs 100 crore that all other insurance companies are required to maintain.

"In the insurance business, the paid-up capital requirement is a dynamic concept," Mr Mathur said, pointing out that some of the new private players have already hiked their capital to much above the mandatory minimum level despite handling much less business than LIC.

However, a concrete move from the Government's side on the Deloitte report would have to wait till the elections are over and a new formation takes over at the Centre.