LIC push helps GIC IPO to sail through

Share sale subscribed 1.37 times; insurance major accounts for over 50% of the bids

The mega initial public offering (IPO) of state-owned General Insurance Corporation of India garnered just 1.37 times subscription on Friday. The ~11,300-crore IPO, the largest in seven years, saw bids worth ~15,440 crore, of which over half came from LIC, SAMIE MODAK writes

The mega initial public offering of equity (IPO) at state-owned General Insurance Corporation of India (GIC Re), the country’s largest reinsurance company, garnered only 1.35 times the subscription.

The ~11,300-crore IPO, largest in seven years, saw bids worth ~15,350 crore, of which a little over half came from government-owned Life Insurance Corporation of India (LIC). The retail (from non-wealthy individuals) portion of the IPO was subscribed 55 per cent; the high net worth individual (HNI) portion was subscribed 22 per cent.The qualified institutional buyer segment (QIB) was subscribed 2.25 times.

Investment bankers say the poor response isn’t an encouraging sign for the government, which has readied two more big-ticket share sales over the next few weeks. The Centre is looking to launch the IPO of New India Assurance and plans to sell its holding in 22 companies through the Bharat-22 ETF. Both offerings are said to be in excess of ~10,000 crore.

“If not for LIC, the GIC IPO might not have been able to go through. Foreign investors continue to be in a risk-off mode. They have been pulling out money from the domestic market since August. Issuers have to largely rely on domestic institutional support,” said an investment banker.

Foreign investors made applications worth ~523 crore, less than five per cent of the issue size. The IPO, third biggest in the Indian market, saw 642,000 applications. In comparison, the ~1,470-crore IPO of state-owned Cochin Shipyard in August had two million applications. Market players said GIC Re’s offering was one of the rare instances where investor response to a government IPO has been cold. “Typically, the market looks up to any IPOs of state-owned institutions. With GIC Re, the pricing was a bit steep and investors thought not enough gains were left on the table. Perhaps the steep disinvestment target set for this fiscal might have forced the government to peg the valuations high,” said another banker, asking not to be named.

The price band for the offer was ~855-912, valuing the reinsurer between ~75,000 crore and ~80,000 crore. Retail investors will be given a discount of ~45 a share on the allotment price. At the top end of the band, GIC Re was valued at 25 times its 2016-17 earnings and four times its book value.

If the IPO is priced at ~912 a share, the Centre, which sold 107.5 million shares in the IPO, will raise ~9,800 crore. GIC Re raised ~1,560 crore in the IPO, to be used for augmenting its capital base.