Members of the Insurance Employees Union of the Life Insurance Corporation of India staged a protest in Dharwad on Wednesday against the Union Government’s decision to privatise the public sector insurer.
Employees gathered in front of the LIC Divisional Office, opposing the disinvestment move saying that the Government had under-evaluated the organisation several times that would cause irreparable damage.
Union leaders Uday Gadagkar, B.N. Poojary, A.M. Khan and others addressed the protestors.
Mr. Gadagkar described the LIC IPO as a regressive event and that May 4 was a black day. “This protest is not against the attempt at privatisation but also due to the unacceptable way in which the market entry was scheduled. The disinvestment move is totally unwarranted and absolutely against the interest of the nation. The policyholders and the people will not benefit from this in any way. It is against Directive Principles of State Policy as mentioned in the Constitution,’’ he said.
LIC is not structured like other companies. Even though the Government had provided the seed capital, its claims on profits from its operations were limited to just 5%. The corporation is legally mandated to set aside 95% of its profits for policyholders. Thus, unlike a typical company, in which shareholders had first claims on profits, in the case of LIC, even though the Government is legally the primary investor, the overwhelming proportion of its profits are set aside for distribution among LIC’s policyholders, he said.
“This profound difference between LIC and other companies is what enabled LIC to function like a giant cooperative enterprise in which shareholders ranked lower than policyholders. LIC is sui generis in the world of finance; nothing like it exists anywhere in the world. Disinvestment in LIC is a thoughtless handing over of control of a vast pool of household savings to private, including foreign, investors,” he said.
“The other disturbing factors are the timing of the IPO and the pricing of shares. The mood of the share market is not conducive due to reasons, including the war in Ukraine. Yet, the Government has pushed the shares of LIC into the market. This proves that the Government, succumbing to pressure from global investors, is offering shares at a deep discount. This is nothing short of a scandal,” Mr. Poojary said. “This is, perhaps, the biggest in the annals of privatisation in India,’’ he added.
According to the Draft Red Herring Prospectus filed with SEBI in February 2022, the Embedded Value of LIC was estimated at ₹5.40 lakh crore, implying that the base value of each one of its 632.50 crore shares is worth at least ₹853. To arrive at market price, a multiplication factor is used. Based on the recent factor which was adopted in issues related to three private insurance companies — ICICI Prudential, SBI Life and HDFC Life — ranging from 2.49 to 3.96, LIC IPO should have formulated the price band.
Shockingly, according to the Red Herring Prospectus, filed by LIC on April 26, the issue is now priced at ₹904-₹949 per share which reveals the multiplication factor applied is just 1.11. At ₹949 per share, the maximum earnings for the Government from the IPO will be ₹21,008 crore.
LIC is definitely the biggest and a very successful life insurance company hence the multiplication factor should have been much more than that of the private insurance companies. The price of each share of LIC would have been ₹3,379 and at this price, the total earnings from the sale of shares would have been ₹74,803 crore. The resulting loss to the public exchequer is a whopping ₹53,795 crore.
“They said that the Government could have waited for a more opportune moment, after markets had calmed. Why could it not rebuff the pressure from capricious investors whose interests are contrary to those of millions of policyholders who are the ultimate losers?” he asked.
