The Life Insurance Corporation of India’s (LIC) Initial Public Offer (IPO) has been opaque and only after the issue of the Red Herring Prospectus(RHP) some details have emerged.

From the initial proposal of 5% sale of shares to fetch around Rs.75000 crore the sale is down to 3.5% to get around Rs.21000 crore. We might have spent more than this amount for getting embedded value assessed by Milliman, a foreign company, on roadshows in India and abroad, on payments to Lead Managers, and on daily advertisements in so many newspapers!  All this expenditure was incurred by LIC. This will directly affect its profit this year and in turn, every policyholder will get a reduced bonus, but the income will go to the President of India as per the advertisement.

The advertisement dated 4th May 2022 contains the following shocking statements.

1. If we are unable to retain and recruit individual agents on a timely basis at a reasonable cost, there could be a material adverse effect on our results of operations.
2. The embedded value for the corporation at the upper end of the price band is 1.11 compared to the average industry peer group Market Capitalisation / Embedded Value of 3.41.
3. As per SEBI / ICDR guidelines, wherein not more than 50% of the Net Offer shall be allocated on a proportionate basis to Qualified Institutional Buyers (QIBs). The corporation in consultation with Book Running Lead Managers (BRLMs) allocated up to 60% of the QIBs to anchor investors, of which one third was reserved for domestic mutual funds.
4. All Potential investors must have PAN and Aadhar Linked Accounts.
5. 10% of the shares are reserved for policyholders at a discount of Rs.60 per share.
6. SEBI only gives its observations on the offer documents, and this does not constitute approval of either the offer or specialised securities mentioned in the offer document.
7. IRDAI does not take any responsibility for the financial soundness of the corporation or for the correctness of any of the statements made or opinions expressed in this connection.
8. Investments in equity and equity-related securities involve a degree of risk, and the investors should not invest in any funds in the offer unless they can afford to take the risk of losing their entire investment.

Now the questions are-

1. Who is going to restrict the recruitment of agents? Is it not the new shareholders?
2. Why the value was fixed at 1.11 of the embedded value when the peers of LIC, have an average value of 3.41? Is it not a great loss to the Govt? The loss is around Rs.50000 crores! Why was this done? To benefit whom?
3. Why the maximum limit fixed for QIBs is given to them? Why not more to the policyholders?
4. As per the RHP around 72% of the policyholders belong to an income group of less than Rs. 2 lakh per annum.  How do you expect them to have PAN cards?
5. Why a company will provide 10% of the shares to its customers at a discounted value? Is it not because they are the real owners? Only a pittance is given to them.
6. If SEBI does not approve the RHP, who approves it? Why do we need SEBI at all if they can’t take any responsibility?
7. If IRDAI cannot take any responsibility, what is its role? Why call it a Regulatory and Development Authority?
8. If there is a risk of losing the entire investment, why the low income and middle-income group of policyholders, who constitute the majority, will invest in the shares of LIC?

 Now let us analyse the scandal in detail. 

1. It is accepted that LIC is not covered under the Companies Act.  The Govt contributed only Rs.5 crores, which was paid as compensation to the owners of the Insurance and other companies which were nationalised to create LIC.  The entire growth of LIC is from the contribution of the policyholders.  They have contributed Rs.188000 crore to the solvency fund on which LIC stands tall. They are getting 95% of the profit as a bonus, which is going to be reduced to 90% now. Is it not a big scandal?. How can you sell something which is not your own? It is like a saying in Tamil “Kadai Thengayai, Vazhi Pillaiyarukku udaipathu” – Breaking the coconut of the shopkeeper for the Ganapathi statue on the road without paying for it!
2. The embedded value is shown as Rs.5.4 lakh crore, whereas the assets of LIC as per its balance sheet are Rs.36 lakh crore. Its fixed asset alone may have a market value of more than Rs.5.4 lakh crore. And then you show value at 1.11 instead of 3.41, which is not even comparable in size. It is not a big scandal?. How did the value of LIC become half in one month?
3. So many Benami accounts have been opened to make a huge profit later as per paper reports. Is it not a scandal?.
4. Even the staff seems to be ignorant of what is a profit-sharing policy and what is not a sharing policy. How can we expect the average policyholder who numbers around 40 crores, including in group insurance policies, to know the benefits before investing?
5. How can you change the terms of the contract for the existing policyholders at your own sweet will? Is it not a scandal?
6. How LIC’s competitors are allowed to bid as anchor investors? Tomorrow, they can create havoc in the share market and bring down the market capitalisation of LIC. The subscription share of anchor investors is oversubscribed, and the major ones are competitors with foreign collaboration. Is it not a scandal?

“As per reports in 4 of the last 5 biggest IPOs, both private and PSUs investors have lost nearly up to their entire investments. Investors in Paytm (One 97 Communications), Reliance Power, Coal India Ltd and General Insurance Corporation have lost 20-97% of their original investment in these public issues. While SBI card and Payment services stock is in green since its issue two years ago, it has massively underperformed in the benchmark indices” (Financial Express May 4, 2022)

As per Economic Times (4th May 2022, 7.38 pm) 67% of the shares were subscribed on the first day itself. Employee and policyholder Quotas were fully subscribed.  Retail Quota saw 60%, Non-Institutional Investors Quota 27% and QIB saw 33% bids so far.

It raises a question–Why the policyholders were given only 10% of the share when they actually own 95% of LIC?

The IPO might become a success with its full subscription, but the scandals have to be investigated. The SEBI, IRDAI and the Supreme Court have to step in because LIC is the only social security available to the poor and the middle class in the country.

Article 14 of the Constitution says “The State shall not deny any person equality before the law or the equal protection of the laws within the territory of India on grounds of religion, race, caste, sex or place of birth.”

Here, the religious minorities, people belonging to SC/ST/OBC community and women who make up a major portion of the policyholders are not given equal opportunity.

The preamble to the constitution says “We the People of India, having solemnly resolved to constitute India into a Sovereign, Socialist, Secular, Democratic, Republic and to secure to all its citizens justice, social, economic and political liberty of thought, expression, belief, faith and worship. Equality of status and of opportunity, and to promote among them all fraternity, assuring the dignity of the individual and unity and integrity of the Nation.” 

The IPO is not providing justice and social and economic equality. It is not providing equality of status and opportunity, and it is not assuring the dignity of most of the policyholders.

Hence, it is time to raise our voices for the common man and woman.

Thomas Franco is the former General Secretary of All India Bank Officers’ Confederation and a Steering Committee Member at the Global Labour University.

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