71% of anchor allotment made to domestic MFS

Insurer raises ~5,627 cr in anchor book but overseas investors disappoint

Life Insurance Corporation of India (LIC), on Monday, raised ~5,627 crore from anchor investors ahead of its mega initial public offering (IPO), with 71 per cent of the amount coming from domestic mutual funds (MFS), shows a late disclosure made by the company.

In total, the state-owned insurance giant allotted nearly 59.3 million shares to 123 investors at ~949 apiece.

“Out of the total allocation of 59,296,853 equity shares to the anchor investors, 42,173,610 equity shares (71 per cent of the total allocation) were allotted to 15 domestic mutual funds (MF) through 99 schemes,” LIC said in a stock exchange disclosure.

SBI MF subscribed to shares worth over ~1,000 crore via four different schemes. ICICI Prudential MF subscribed to shares worth over ~700 crore through over half a dozen schemes and HDFC MF subscribed to shares worth over ~650 crore of the insurer via 10 different schemes. Aditya Birla Sun Life MF and Axis MF were other major subscribers among domestic fund houses.

Among foreign funds, the Singapore government’s sovereign wealth fund (GIC) subscribed to shares worth over ~400 crore through three funds and BNP Investments subscribed to shares worth nearly ~450 crore.

A little over ~1,600 crore came from overseas funds. The low demand from foreign funds is on the back of ongoing risk aversion among foreign portfolio investors (FPIS). So far this year,

FPIS have sold shares worth ~1.3 trillion ($17.3 billion), according to data provided by National Securities Depository Limited.

To benefit LIC, the Securities and Exchange Board of India (Sebi) has deferred the implementation of the stricter 90-day lock-in period for anchor investors in the case of large IPOS (over ~10,000 crore in size) until July 1. Investors who have subscribed to LIC’S shares under the anchor category will have to adhere to only a 30-day lock-in period. The insurer’s IPO will remain open from May 4 to May 9. After accounting for the anchor book, the IPO still has to generate bids for shares worth nearly ~15,000 crore.

The company is relying heavily on bids from small investors. Over ~8,500 crore worth of shares are reserved for retail investors (those placing bids worth up to ~200,000), policyholders, and employees in the IPO. Besides, rich individuals can also bid in the non-institutional investor (NII) category.

Due to demand uncertainty, the government has reduced the equity dilution in the IPO from 5 per cent to 3.5 per cent. The issue size has also been reduced significantly from an estimated ~60,000 crore to just ~20,557 crore (after accounting for policyholder and retail discounts).

Despite the reduced size, LIC’S IPO will be India’s biggest ever, surpassing the ~18,300-crore IPO by One97 Communications (Paytm) in November 2021. The digital payments major, however, had a larger anchor book, worth ~8,235 crore. This was because Paytm didn’t meet the profitability criteria and hence had to set aside a larger portion of shares for institutional investors.

“The IPO of LIC will be a landmark event for Indian capital markets and is likely to attract several first-time investors. This is also likely to give momentum to the disinvestment agenda of the government. External factors, as well as inflationary pressures, will continue to keep our markets volatile in the immediate future and thus companies with a strong profit record or a scalable business model may only be able to attract investors for IPO in the near term,” said Sandip Khetan, partner and financial accounting advisory services leader, EY India.

The price band for LIC’S IPO is ~902-949 per share. At the top end, the company will have a market cap of ~6 trillion, 1.1 times its embedded value of ~5.4 trillion as of September 2021.

Most domestically listed private sector life insurers trade between 2.4 times and 3.8 times. However, some of the big global insurance companies trade at a market capto-embedded value of less than one.

Post-listing, LIC will be India’s fifth most valuable firm ahead of Hindustan Unilever and ICICI Bank, and slightly below Infosys.

The company is relying heavily on bids from small investors. Over ~8,500 crore worth of shares are reserved for retail investors