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The much-anticipated Initial Public Offering (IPO) of Life Insurance Corporation (LIC) will open on May 4. The government aims to offload 3.5 per cent of its holding in the insurance behemoth, subject to regulator approval.
“Application can be made till May 9,” a source said. For the anchor investor, date of application would be May 2. The government has already filed Revised Draft Herring Prospectus (DRHP) with the market regulator SEBI.
Market valuation
Going by the market valuation of ₹6 lakh crore, the issue size is estimated at ₹ 21,000 crore. There could be green shoe option too, however, sources have not confirmed yet. The market valuation is nearly 1.1 time of embedded value (EV). International actuarial firm Milliman Advisors has estimated EV at about ₹5.4-lakh crore as of September 30, 2021.
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Waning demand for LIC IPO highlights fiscal challenges for the Centre
Anchor investors are reluctant to commit as the war eroded demand for equitiesEarlier, a senior government official had told BusinessLine that reservations, discounts for various categories of investors, and issue price will be known by Wednesday morning. The Draft Red Herring Prospectus (DRHP) had already mentioned that the employee reservation portion will not exceed 5 per cent of post-Offer Equity Share capital. Also, the policyholder reservation portion will not exceed 10 per cent of the offer size.
Last Saturday, LIC board approved the issue size at 3.5 per cent of government holding which, in terms of absolute numbers, comes to around 22.14 crore shares. Earlier, in the DRHP, filed with SEBI on February 13, the government had proposed offering 31.62 crore shares which was around 5 per cent of total number of equity shares.
Russia-Ukraine crisis
Reason for cutting down the size of LIC IPO include Ukraine-Russia crisis, withdrawal by foreign portfolio investors (FPI) from Indian market and higher inflation and resultant increase in the interest rates globally. It was reportedly a tough decision to conclude whether to go ahead with the retail and domestic investor demand or to wait for geopolitical tension to ease and FIIs to return to market. The government finally settled for going ahead with the issue.
The March-end deadline for bringing the issue had to be postponed because of the Russia-Ukraine conflict. The Government has time till May 12 to launch the IPO without filing fresh papers with markets regulator SEBI. LIC IPO is expected to contribute a major chunk to the budgeted disinvestment proceeds in the current fiscal year. The government has pegged disinvestment receipts at ₹65,000 crore for 2022-23 — up from ₹13,531 crore last fiscal year.
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