Objective of LIC IPO is to get the life insurance behemoth listed on the bourses rather than mobilising money, a senior government official said on Friday. He also said that timing of the mega initial public offering (IPO), slated to be largest-ever in Indian capital markets history, will be known by next week.
Meanwhile, Merchant Banking sources privy to the discussions with the government said that the effort and the intent is to hit the market in the next 10 days or so.
“Current market conditions desire listing of LIC irrespective of the size of the Initial Public Offer (IPO),” a senior Government official told BusinessLine. However, the size and price of IPO is yet to be finalised. “Issues like timing etc. will be clearer by next week,” the official said. There are reports that the size of the issue is likely to be trimmed down to ₹30,000 crore or so from initial ₹50,000 crore. Also, there were initial indications the government may sell more than 5 per cent. However, the official termed all these as speculative.
LIC’s embedded value, which is a measure of the consolidated shareholders’ value in an insurance company, was pegged at about ₹5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors. In the Draft Red Herring Prospectus (DRHP) filed with the market regulator SEBI, the government mentioned that it aims to sell 5 per cent of its stake which comes around 31.62 crore shares. The government had filed the DRHP with SEBI on February 13.
There were estimates made in certain quarters that LIC’s market valuation would be about 2 or 3 times of its embedded value. However, there is feeling in the government that for a company of the magnitude of LIC, such high multiplier to embedded value may not be correct. Further, government managers want issue price to be fixed in a way that on the listing day there is an upside to the stock.
The official also mentioned that Ukraine-Russia conflict, withdrawal by Foreign Portfolio Investors (FPI) from emerging economies like India and rising inflation along with interest rates globally, are some of the important factors weighing on the decision making process of LIC IPO. “There are two options – postpone it or hit the market. It would be tough call to decide 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 official quoted above said.
Meanwhile, a top merchant banker handling the issue said the timing intent is to get it done in next ten days or so. “Everything is under discussion with the government. It will take 2-3 days for us to complete the discussions. Unless we complete discussion in all aspects, I don’t know how the government will decide on timing, price and size of issue etc,” he said.
Earlier, the government planned to bring the issue before the end of March. However, Russia conflict on Ukraine derailed the plan. Now, the government has time till May 12 to launch the IPO without filing fresh papers with markets regulator SEBI. For this, it needs to file the red herring prospectus with the regulator by next week.
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.