LIC seeks exemption from Sebi on deposit norm for upcoming IPO

Mumbai: The Life Insurance Corp. of India (LIC) has sought exemption from the Securities and Exchange Board of India (Sebi) on deposits with exchanges for its upcoming public offering. Any company floating an initial public offering (IPO) has to deposit an amount equivalent to 1% of the issue size with stock exchanges. The security deposit, aimed at countering fraud, is returned to the issuer after the share sale.

"Our corporation vide its letter dated February 13, 2022, has sought an exemption under Regulation 300(1) of the Sebi ICDR Regulations from depositing one per cent (1%) of the amount of securities offered for subscription to the public as security deposit," LIC said in its offer document filed last week.

The state-owned insurer may have to deposit ₹500-800 crore or more with exchanges, said people with direct knowledge of the matter. According to lawyers handling the issue, the 1% deposit will be a challenge for an IPO of LIC's size.


'A Buffer to Regulators'
While exact figures are yet to be revealed by LIC, the street expects the state-owned insurer to raise Rs 50,000 crore to Rs 90,000 crore.

Since the government owns LIC, there won't be any fears about the promoter misappropriating funds prior to the share allotment, said the people cited above.

The insurer, which filed its offer document last week, declined to comment, citing Sebi guidelines.

"LIC is not in a position to reply to your queries," said a spokesperson.

An email sent to Sebi remained unanswered.

"Typically, a company deposits the sum one day prior to the anchor allotment and this deposit stays with the exchanges until final allotment is completed and refunds are processed," said a lawyer. "The rule ensures only companies with serious IPO plans hit the market and also serves as a buffer to the regulators in case of any fraud during the IPO."

Under IPO rules, Sebi has the power to provide specific exemptions to issuers. It's yet to respond to LIC on the matter, said the people cited above.

"This security deposit is required to ensure shareholders interest is protected and the amount is refunded upon due compliance and resolution of investor grievances," said Moin Ladha, partner, Khaitan & Co. "Sebi does consider waiver for prescribed conditions based on satisfactory reasons and justifications being provided."

Sebi has granted an exemption to LIC on furnishing the financial statements of subsidiaries while filing consolidated financial information, according to the offer document. Sebi provided one-time exemption to LIC through a January 28 letter. LIC has also asked Sebi for an exemption on disclosing the "consolidated number of creditors," it said in the offer document. Sebi is yet to give its decision on this.