Govttohireanchorinvestorsforlicipo
These entities are likely to invest up to ₹25,000 crore in the insurer’s shares
The government is planning to bring in a clutch of anchor investors to invest up to ₹25,000 crore in the shares of Life Insurance Corp. (LIC) of India in the planned mega initial public offering (IPO) of the country’s largest insurer.
Two persons, including a top government official, confirmed this on condition of anonymity, adding that LIC will undergo a change in its board structure and adopt new accounting norms in the coming few months before the IPO.
“We will invite anchor investors after the embedded valuation exercise is done and the pricing for the IPO is ready,” said the first person, who is a central government official.
The government’s plan to sell stake in state-run LIC has been complicated by the size of the company.
A mere 10% stake in the company is estimated to be at least ₹1 lakh crore, an amount that is unconventionally high for the Indian equity market to absorb.
“We will have anchor investors for LIC’S IPO and they will buy LIC’S shares to help in measuring the market demand. The anchor investors will buy a portion of the shares meant for qualified institutional buyers (QIBS) in the IPO of LIC. If the anchor investors pay say ₹X and the market is ready to pay a price of ₹X+5 on the day of the IPO, then the anchor investors will have to bring in the extra amount to match the market price. And if the market shows a demand of ₹X-5, we don’t have to refund the extra amount to the anchor investors. This is the benefit of having anchor investors,” said the first person.
“There may be more than two dozen odd anchor investors in LIC’S IPO,” said the second person.
According to the two people, currently the compliance processes at LIC are being aligned with listing norms.
“There will be changes at the constitutional level at LIC. Even though we term LIC’S board as a board but there is no prescribed board at LIC as defined under the Securities and Exchange Board of India’s listing norms. So, apart from the ongoing actuarial valuation exercise underway at LIC, several other changes will be done at LIC. We are regularly meeting LIC to speed up the IPO process,” said the first person.
The draft red herring prospectus for LIC’S listing will be filed in the next six months, said the government official.
“Once their annual financials are ready, it will further aid the process of valuation. We will be coming out very soon with the RFP for appointing merchant bankers, advisors and the registrar for the IPO,” said the first person.
LIC’S IPO is a crucial divestment for the government in order to garner enough non-tax revenues to narrow the country’s fiscal deficit and compensate for budgetary expenses outlined by the exchequer.
As per the plan, the two people said that LIC’S board will adopt a new structure to make it eligible for listing. At present, LIC’S board comprises of LIC’S chairman, its four managing directors, members of LIC and representatives from the Centre.
“Also, LIC needs to change its financial reporting structure by consolidating the financials of its various businesses. LIC has a mutual fund company, a pension fund company, overseas businesses etc. When an entity goes for an IPO, disclosing consolidated annual results is mandatory. So, LIC needs to consolidate its financials. That’s a new process underway at LIC,” said the first person.