Life Insurance Corporation of India (LIC) logo is seen at a metro station in Mumbai, India, January 31, 2022.
Life Insurance Corporation of India (LIC) logo is seen at a metro station in Mumbai, India, January 31, 2022. Reuters / FRANCIS MASCARENHAS

State-run Life Insurance Corporation of India (LIC) has filed draft papers with the market regulator for what could be the country's largest initial public offering (IPO).

The offering is crucial to the Narendra Modi-led government's efforts to meet its sharply trimmed divestment target for the current financial year and will provide a measure of the success of the government's pro-market policies.

India's largest insurer will be selling 316.25 million shares, according to the draft prospectus dated Feb. 13, amounting to nearly 5% of the post-offer paid up share capital.

The filing also stated an embedded value of 5.39 trillion Indian rupees ($71.56 billion). The embedded value is a measure of future cash flows in life insurance companies and a key financial gauge for insurers.

The IPO is seen as a test of investor appetite for new offerings, with a number of companies that listed last year now trading below their offer prices on concerns over lofty valuations and looming increases to interest rates by global central banks fighting inflationary pressures.

The listing also comes against the backdrop of foreign investors pulling out funds from the domestic market.

The life insurance giant, which had more than 105,000 ful-time employees at the end of September, manages more than $450 billion of assets and holds more than 60% of India's life insurance market by premiums.

It also held 61.44 billion rupees of government securities and T-Bills at Sept. 30 and has put its brand value at $8.66 billion.

Though the government's scaling back of its privatisation target to $10.5 billion raised uncertainty about the size of the planned LIC offering, government officials have said investors should not assume the revised target points to a smaller than expected IPO for LIC.

The government was aiming to raise up to 900 billion rupees ($12.2 billion) from the LIC stake sale.

India's last IPO by a life insurer was in 2017, when HDFC Life Insurance raised $1.3 billion. The share price has nearly doubled since listing.

LIC's planned offering will dwarf the record $2.5 billion IPO by payments company Paytm last year. Though Paytm's IPO was then the country's biggest, the shares have since fallen by 58% from its offer price.

Indian companies raised a record $16.6 billion through initial share sales in 2021, 52% more than the previous record high in 2017, Refinitiv data shows.