The Life Insurance Corporation of India could be hitting the market with an initial public offering.

The Congress-led coalition government plans to dilute the Centre's stake in profit-making public sector undertakings on a case-by-case basis. LIC could top the list of profitable public sector undertakings that will enter the market.

LIC Chairman and Managing Director S B Mathur told Business Standard, "We are a profitable PSU and we should be covered by this."

He refused to elaborate any further, but sources said the government would seriously look at the possibility of taking LIC to the market. Evidently, the previous government had agreed to the dilution.

The government has in principle no problem in divesting up to 49 per cent of the equity of profit-making PSUs, provided it retains management control and remains the majority stakeholder.

LIC's 2003-2004 accounts have not yet been passed. The state life insurer does not go by the net profit concept. Instead, its surplus indicates its profitability. It is in the process of collating the surplus for 2003-2004.

But LIC's surplus was Rs 9,761.8 crore (Rs 97.618 billion) in 2002-2003, up from Rs 8,664.8 crore (Rs 86.648 billion) in the earlier year. On this, the government was paid a five per cent annual dividend, which amounted to Rs 488 crore (Rs 4.88 billion) in 2002-2003.

A Deloitte & Touche report on the financial health of the LIC, commissioned by the BJP-led NDA government, had recommended that the government dilute its holding in LIC as part of the restructuring of the state-owned life insurance entity.

LIC doesn't fall under the Companies Act and the proposal was forwarded to the Centre for its corporatisation. It was suggested that LIC access the capital market to meet its future capital requirements.

But before LIC hits the market with an IPO, the government will be required to recapitalise the entity. "LIC needs to be well funded. It cannot have a Rs 5 crore (Rs 50 million) capital base when it is running a balancesheet of Rs 3,40,000 crore (Rs 3,400 billion)," said LIC managing director RK Vashishtha.

According to the Insurance Regulatory and Development Authority, all insurance companies should have a minimum share capital of Rs 100 crore (Rs 1 billion).

According to LIC officials, the recapitalisation of the corporation is required to dilute the earnings per share. This is because on the miniscule paid-up capital of Rs 5 crore (Rs 50 million), the pricing of shares would be abnormal in a public float.