The Life Insurance Corporation (LIC) initial public offering (IPO) will open next week.
While the IPO will open to major investors on May 2, others will be able to bid on it from May 4-9.
The insurance giant has set an IPO price band of Rs 902-949 and is offering discounts for policyholders, retail investors and its employees. The discount for policyholders is Rs 60 and it is Rs 45 for employees and retail investors.
Let’s see what this means for LIC employees.
What is the employee discount in an IPO?
When a company announces by issuing an IPO, it provides an opportunity for its employees to participate in a public issuance.
It does this in two ways: either by booking a portion of the stock for them or giving them a discount on the floor price.
Both of these measures are widely seen as a way of rewarding employees for their service and loyalty to the company.
Ordering the issuance of shares increases the likelihood of employees acquiring shares in popular IPOs, such as LICs set to be issued. Discounts offered to employees are also intended to achieve the same results.
What is the price band?
Price bands give a broad picture of the true value of a stock. During an IPO, potential investors are given a range – upper and lower limits – over which they can bid to buy shares.
The price band is determined jointly by the issuer (company) and the underwriter.
An underwriter is a financial expert who helps a company prepare for an IPO by considering issues such as the amount of money to be raised, the type of securities to be issued and the agreement between the underwriter and the company.
The price band takes into account several factors, including demand for the stock and the company’s future growth potential.
How does it work?
Price bands are set to keep investors bidding with the range.
This means that if the price band is set from 900-920, then investors need to place it in this range for consideration. If any investor places an offer below the bottom band (900), the offer will be rejected.