After lowering the expected valuation and reducing the size of the offering, the government expects the May 4-9 initial public offer (IPO) to be a success as it will leave money on the table for investors and provides for a listing bump.
The share sale is part of the government’s long-term strategic vision and will enhance the value of LIC in the long run, said Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management (DIPAM), the nodal body for divestment.
“The current IPO is the first step of long-time value creation for LIC shareholders,” he said at a press conference on Wednesday. “This issue is right-sized considering the capital market environment and will not crowd out capital and monetary supply, given the current environmental constraints. The optimal size should provide strong demand and after-market performance.”
The IPO, which was first expected to be completed in March, was delayed due to adverse market conditions following Russia’s invasion of Ukraine.
Both the size and valuation of the issue have been lowered–the government is diluting 3.5% of its stake against the 5% planned earlier. The price band has been fixed at Rs 902 to 949 per share, valuing the company at about Rs 6 lakh crore, down from Rs 13 lakh crore seen in March.
Pandey however said that valuation will depend on how the market and investors price the shares when LIC is publicly listed and it’s not correct to say that this is lower than planned.
“Valuations are all guesstimates by comparing with listed players like SBI Life or HDFC Life, or you can even compare with foreign companies like China Life or AIA. Ultimately, it is the market that will price it,” he said.
To be sure, at Rs 949 per share, LIC will raise Rs 21,000 crore, which still makes it the biggest IPO in India, beating the Rs 18,300 crore raised by Paytm last year. LIC has got special permission from the Securities and Exchange Board of India (Sebi) for a reduction in the dilution of stake as current rules stipulate that a minimum 5% dilution is necessary for companies valued at more than Rs 1 lakh crore.
Pandey said the decision to list at the current juncture was taken looking at “the market demand which includes solid anchor book, stabilising market condition, reducing volatility, domestic flows and the corporation’s financial performance.”
The government is expecting retail investors to bid aggressively to take advantage of a Rs 45 per share discount. There’s a higher Rs 60 per share discount for policyholders. The minimum amount of shares that can be bid for is 15.
LIC chairman MR Kumar said the company has linked almost 65 million PAN numbers with policies but the demand from these investors cannot be predicted because it is not known how many of them have a Demat account.
Kumar said he expects domestic funds to be a big part of the anchor book.
“Domestic funds have absolutely no problem,” he said. “FIIs (foreign institutional investors) have concerns no doubt, but the long-only funds know that they are not parking money to take it out next year, so they don’t mind–they are there for the long haul. So I think there will be good interest from them, which will give us a good base.”
LIC as an investor has bailed out many an IPO and Kumar said he expects some of the beneficiaries to pitch in and buy LIC shares now.
“When we have helped people so much, are you to help us now… and they are ready to pitch in. They are also investing as we did for years. There are some very good names which we believe will act as domestic investors,” Kumar said.
