Shares of Life Insurance Corporation of India (LIC) fell sharply on Tuesday after the Union government launched an offer for sale (OFS) to divest up to a 6.5% stake in the country's largest insurer, with the discounted offer price weighing on investor sentiment.
The stock fell as much as 7.9% to an intra-day low of ₹390.70 on the Bombay Stock Exchange (BSE) during morning trade. It later recovered some ground to trade at around ₹397.80, still down more than 6%. On the National Stock Exchange (NSE), the stock declined as much as 8.9% to ₹390.50 after the OFS opened.
The decline followed the government's announcement of a two-day OFS comprising a base offer of 2.5% of LIC's paid-up equity share capital and a greenshoe option to sell an additional 4% stake. If the entire 6.5% stake is sold, the government is expected to raise about ₹31,000 crore, making it the largest stake sale in LIC since its listing in 2022.
The issue opened for non-retail investors on Tuesday, while retail investors can bid on Wednesday.
Discounted Floor Price Weighs on Stock
The government has fixed the floor price for the OFS at ₹382 per share, about 10%-11% below LIC's closing price on Monday. The stock ended Monday at ₹424.35 on the BSE and ₹428.50 on the NSE.
Market participants attributed the decline in LIC shares to the discounted floor price as well as concerns over the large volume of shares entering the market through the OFS.
At the floor price, the proposed sale of more than 82.22 crore shares would be valued at about ₹31,000 crore.
First Stake Sale since LIC's IPO
The OFS marks the government's first divestment in LIC since the insurer's landmark initial public offering (IPO) in May 2022.
During the IPO, the government sold a 3.5% stake at a price band of ₹902-₹949 per share, raising about ₹21,000 crore. Following that transaction, the government's holding in LIC stood at 96.5%.
If the current OFS is fully subscribed, the government's stake will reduce to 90%, while public shareholding will increase to 10%.
Department of investment and public asset management (DIPAM) secretary Arunish Chawla said the government is offering to disinvest a 2.5% equity stake with an additional 4% through the green shoe option.
In a post on X, Mr Chawla said the OFS would help LIC achieve the minimum public shareholding (MPS) milestones ahead of schedule.
Meeting SEBI Norms
The stake sale is aimed at helping LIC comply with the Securities and Exchange Board of India (SEBI)'s minimum public shareholding requirement.
SEBI has granted LIC time until 16 May 2027 to increase its public shareholding to at least 10%. At present, public shareholders own 3.5% of LIC's equity, while the government holds the remaining 96.5%.
Successful completion of the OFS would enable LIC to meet the regulatory requirement well before the deadline.
Boost to Divestment Programme
The LIC stake sale also forms a key part of the Union government's broader disinvestment and asset monetisation programme.
The government has set a target of mobilising ₹80,000 crore through divestment and asset monetisation in FY26-27. So far in the current financial year, it has raised about ₹21,082 crore through stake sales in seven public sector undertakings and remittances from the Specified Undertaking of the Unit Trust of India (SUUTI). Earlier stake sales during the year included NHPC, Coal India and Indian Railway Finance Corporation.
OFS Structure
Under the OFS mechanism, the floor price represents the minimum price at which the government is willing to sell its shares and investors cannot bid below this level.
The final allotment will take place at the discovered price, determined after the bidding process based on investor demand. Retail investors also have the option to bid at the cut-off price, agreeing to purchase shares at the final price determined through the OFS process.
LIC currently has a market-cap of more than ₹5.36 lakh crore. The outcome of the OFS is expected to be closely watched by investors as one of the government's largest capital market disinvestment exercises since the insurer's IPO.
LIC closed Tuesday 7.86% down at ₹391 on BSE, while the 30-share Sensex ended the day 210 points down at 78428.95 points.
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