The Centre has pegged the price band of the upcoming mega LIC initial public offering (IPO) at ₹ 902-949, a government source confirmed. It has also sweetened the LIC IPO deal for retail investors, policyholders, and the insurance behemoth’s employees by deciding to offer them an attractive discount to the issue price to be discovered in the book-building exercise that will be open from May 4-9. 

While the discount for retail and employees has been pegged at ₹45 per share, the discount for policy holders will be ₹60 per share, sources added. The bid lot size for the proposed IPO in the retail category has been pegged at 15.

The Board of LIC met in Mumbai on Tuesday to finalise the details of the IPO and pave the way for the filing of red herring prospectus (RHP) with SEBI by Wednesday. The anchor tranche will be open on May 2.

Billed as the largest IPO ever in the Indian capital markets, the Centre aims to raise ₹21,000 crore by selling 22.13 crore shares (face value of ₹10 each), which is about 3.5 per cent of the government’s 100 per cent holding in Life Insurance Corporation (LIC). The Centre currently owns the entire paid up capital of ₹6,324.99 crore.

It may be recalled that the government had on February 13 filed a draft red herring prospectus (DRHP) with SEBI disclosing its intent to offload 31.62 crore shares (5 per cent shareholding) through an IPO. However, last Saturday, the LIC Board decided to scale down the size of the offering to 3.5 per cent in the wake of choppy market conditions due to the ongoing Russia-Ukraine conflict and the uncertainty over the Covid-19 pandemic.

Reservation

Of the IPO issue size of 22.13 crore shares, there will be a reservation of 10 per cent (2.21 crore shares) for policyholders.  Employees too will be allocated 0.15 crore shares under the reservation quota.  After policyholders and employees’ reservations, the remaining shares are to be allocated in the ratio of 50 per cent to Qualified Institutional Buyers (QIB); 35 per cent to retail, and 15 per cent for non institutional investors. As much as 60 per cent of QIB’s shares would be reserved for Anchor investors. 

Indications are that the anchor book would see a tremendous response, with several overseas institutional funds and sovereign wealth funds expressing keen interest in participating in the IPO at the current valuation of ₹6 lakh crore, which formed the basis for the Centre to arrive at a price band of ₹902-949 in taking LIC to the public market.

Milliman Advisors, a global actuarial firm, had estimated the embedded value of LIC at ₹5.4 lakh crore as of September 30, 2021.  This would mean that the government and its merchant bankers have priced the IPO at an EV multiple of 1.1 , much lower than the earlier expected range of 2-2.5.

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