LIC set to test investor appetite coming week
MUMBAI: Life Insurance Corp. of India’s ₹21,000 crore initial public offering is set to test investor appetite next week amid choppy markets, as foreign investors pull back from risky emerging markets following the Russian invasion of Ukraine.
The government’s decision to slash the size of the IPO and pare its valuation expectations were taken based on the constrained market environment, Tuhin Kanta Pandey, secretary for the Department of Investment and Public Asset Management (Dipam), told reporters in Mumbai on Wednesday.
The government initially planned to offload at least 5% of LIC through the share sale, but has cut the size of the stake sale in the state-run insurer to 3.5% as markets worldwide recorded significant losses in the weeks after Russia invaded Ukraine on February 24. It has also significantly pared the valuation to make the IPO more attractive to investors. The government has decided to proceed with the share sale, although after a slight delay, despite adverse market conditions even as several equity-market transactions were withdrawn as companies and bankers hit the pause button.
“This is the right size considering the current capital market environment and will not crowd out capital and monetary supply, given the current environmental constraints,” Pandey said. “Valuation flows from optimizing positioning, devising the best marketing strategy, accessing investors in the right way and right sequence, structuring the deal appropriately and selecting the optimal market window.’’
The LIC IPO opens for subscription on May 4 and will close on May 9, with shares priced in a range of ₹902-949 apiece.
The IPO values LIC at ₹6 lakh crore, almost near its embedded valuation and much lower than the ₹10 lakh crore to ₹15 lakh crore range that news reports said it would when the company filed its draft IPO papers in February. LIC’S draft IPO documents pegged its embedded valuation, a measure used mainly by life insurers, at ₹5.39 lakh crore. Many of India’s listed life insurance firms trade at 2-3 times their embedded valuations.
Pandey said the valuation was arrived at through an iterative process with extensive feedback from investors.
“It is not correct to say three months back valuation was this or that; these are all speculation. The valuation process is essentially a discovery process, because in this case you don’t know what exactly we are comparing. Is LIC equal to HDFC Life or SBI Life or equal to some of its Chinese peers, or equal to Prudential or AIA. Extensive feedback has come and through an iterative process, we have worked out a valuation. I would say this is a fair and attractive valuation,” Pandey said.
He said it was important for the government to make the valuation attractive as it is the Centre’s goal to enable millions of Indians to participate in this IPO process and benefit as the value of LIC is unlocked. The government has committed not to bring any follow-on public offer for 12 months, Pandey added.