LIC: LIC cleans books of bad loans as it gets IPO-ready

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(This story originally appeared in on Jul 09, 2021)

Mumbai: The Life Insurance Corporation of India (LIC) is cleaning up its books ahead of its initial public offering (IPO) later this year. The corporation, which brought down its net non-performing assets to 0.05% as of March 2021 from 0.79% as of March 2020, is now selling its fully provided NPAs.

As part of its IPO plans, the corporation plans to audit its half-yearly accounts for the period ended September 2021. Traditionally, the corporation has been publishing only full-year accounts. The half-yearly accounts are likely to include the embedded value — a valuation method unique to insurance companies that includes the net present value of future earnings from policies. LIC has appointed Milliman as the actuary for the process and EY as the advisers.

The corporation is simultaneously engaged in the recast of its capital base that will enable the distribution of shareholding over a much wider base. The government is determined to complete the public issue during the current fiscal and, with that in mind, is working toward ensuring that the corporation’s books are IPO-ready as of end-September. The ministry is putting the remaining legislative changes in place. LIC, too, is working overtime to put in place policies to comply with Sebi regulations for listed companies.

Although LIC has a large corporate debt portfolio, the share of exposure to corporate debt is small considering that it has policyholder funds, which have gone up to Rs 34,87,654 crore.

IDBI Capital Markets has put on the block LIC’s exposure to 15 companies, including DHFL,

, Reliance Capital, Jaiprakash Associates, Amtek Auto, IL&FS and Sintex.

According to sources, the corporation has fully provided for these loans and the sale would improve the quality of its portfolio. Sources said that it is not selling the entire portfolio of default debt, but is doing so in a phased manner.

IDBI Capital Markets is offering LIC’s loans to asset reconstruction companies, ba-nks, NBFCs, and alternate investment funds. The potential buyers must sign a non-disclosure agreement. The investment bank has said that it may resort to the Swiss challenge method of selling where the rivals will be given an option to improve on the best bid. Sources said that some of the loans were being sold because of a regulatory requirement.

LIC’s IPO is expected to be the biggest in India with many analysts expecting a share sale in excess of Rs 1 lakh crore. Besides its sheer size, the corporation is seen as valuable given its share of new business and high persistency among its policyholders.

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