According to news, the Centre would sell a minimum of 3.5 interest in LIC (Life Insurance Corporation) IPO. Still, if sufficient demand from investors is received by Tuesday, the ultimate size of the IPO might be going to 5%, as recommended in the draft red herring prospectus.
The board approved the plan’s broad ideas of directors during a meeting in Delhi on Saturday, subject to regulatory approval. According to insiders, the pricing range for the IPO, which is scheduled to go public in the first week of May, “would be sub-Rs 1,000/share.”
This implies the government might receive between Rs 21,000 and Rs 30,000 crore due to the glitch, much less than predicted before. The smaller IPO and lower price reflect input from institutional investors and recent capital outflows from India and other interested market countries as a consequence of the Russia-Ukraine crisis. The IPO’s final document, which includes the IPO’s size, price, discounts, reserve, and issuance dates, will be issued on Wednesday morning. “The minimum amount for the IPO is 3.5 percent of it equity, subject to regulatory approval; if we get further demand from anchor investors by Tuesday, we may raise the number to 5% in the final IPO document.”
The IPO relies heavily on local institutional and retail investors due to lukewarm demand from overseas investors due to growing prices and interest rates and “India’s position on the Ukraine situation,” according to sources. Due to little interest from foreign institutional investors, the Centre has agreed to a significantly lower valuation of Rs 6 trillion for LIC, even though its owner valued the state-run insurer at roughly double that amount in the FY22 Budget projection.
The insurance giant is valued at 1.1 times its Rs 5.4 trillion inherent value. With the current SEBI clearances, LIC can bring the IPO to market before May 12. As shown in the draft red herring prospectus, the typical EV will have to be revised if postponed beyond this date. If the IPO is delayed, the market conditions may deteriorate further to a rising interest rate situation.
Besides the Ukraine crisis and the US Federal Reserve’s interest rate increases, local fuel price hikes and inflationary pressures contributed to India’s recent capital outflows. The government would need a special clearance from the market regulator to issue less than a 5% share in LIC since the regulations demand remarkable corporations with a market value of above Rs 1 trillion to dilute at least a 5% holding in an IPO.
Despite foreign institutional investors (FIIs) moving money out of India and other developing markets owing to a weaker risk appetite, the government has decided to go with the LIC IPO because it does not want to disappoint local retail investors who have been waiting for the issuance. Due to market instability after the outbreak of the Ukraine-Russia conflict, the LIC IPO was postponed until March 2022.
Employees and policyholders have been given 5% and 10% of the total issue, respectively. The insurer is likely to provide these two categories of investors a discount after deciding the pricing in consultation with the book-running lead managers. After these two categories are subtracted, individual investors get 35 per cent, qualifying institutional purchases to receive 50 per cent, and non-institutional purchasers receive 15 per cent. Foreign institutional investors would be included in the QIB section.
Why do investors attract to LIC?
LIC’s listing on bourses as India’s most prominent and fifth-largest life insurance firm is expected to affect many things in the Indian capital market.
The second aspect boosting investor interest in LIC is the underserved nature of our country’s life insurance business. Even though LIC sells millions of policies, India’s insurance premium-to-GDP ratio is just 3.7 per cent, much below the global average of 7.23 per cent. Most Indians have inadequate life insurance as compared to those in other countries.
The possible shift in benchmark indexes is the third importance of LIC’s IPO. LIC may probably be included in the S&P BSE Sensex and Nifty50 indexes, which would mean that LIC would take the place of another large-cap corporation. When this happens, we may see a churn in the market as investors adapt their portfolios to the country’s biggest insurer.
The insurer’s portfolio disclosure is the fourth significant aspect of LIC’s IPO. With Rs 39 trillion in assets, LIC is the biggest investor in government bonds and stocks, outnumbering the mutual fund market. Like any other publicly listed company, LIC will be compelled to submit quarterly financial reports after its IPO. All market players will be able to assess changes in LIC’s portfolio and draw meaningful conclusions.
Size of the LIC Initial Public Offering
In February, the government submitted LIC’s draft documents to India’s Securities and Exchange Board (Sebi) to raise roughly Rs 65,000 crore at a market value of Rs 12 lakh crore. The IPO’s size is now expected to be cut to Rs 21,000 crore, with a greenshoe option of Rs 9,000 crore.
Date of the LIC Initial Public Offering
According to a BS story citing sources, the LIC IPO will go public on May 2. The government submitted new draft paperwork for the IPO the previous month. The government now has until May 12 to launch the LIC IPO, after which it would have to submit further documents to the Securities and Exchange Board of India (SEBI). It will also need to provide the December quarter’s results and update the embedded value. According to draft files, the LIC’s embedded value was Rs 5.39 lakh Cr as of September 31, 2021.
Market conditions are now turbulent due to continuous selloffs by foreign portfolio investors in response to the US Federal Reserve’s decision to tighten monetary policy and raise interest rates rapidly.
Reserved Quota for the LIC IPO
Around half of the (IPO) has been reserved for qualified institutional investors (QIBs). On a discretionary basis, 60% of the QIB’s part has been set aside for anchor investors, and domestic mutual funds will get one-third of the anchor investor share.
Non-institutional investors will get around 15% of the total (NII). Retail investors will be allowed to participate in approximately 35% of the offering. A considerable amount of the public issuance will be set aside for policyholders, not to exceed 10%. Employees will be given a 5% discount on the LIC IPO. Employees and policyholders would be able to participate in the LIC IPO at a reduced cost.
So Far, the Biggest Initial Public Offering
Even with the lower amount of Rs 21,000 crore, the LIC IPO would remain the country’s most extensive IPO. The largest IPO is Paytm, which will raise Rs 18,300 crore in 2021, followed by Coal India Ltd, which raised Rs 15,500 crore in 2010, and Reliance Power, which raised Rs 11,700 crore in 2008.
Edited by Prakriti Arora