Market timing: Govt in ‘no rush’ to push LIC’s IPO

Published on Mar 14, 2022 12:07 AM IST
The government, which trimmed its divestment target by over 55% to 78,000 crore in 2021-22, has so far mopped up only 12,423.67 crore.
LIC, once listed, has the potential to become one of the biggest domestic companies by market capitalization with an estimated valuation of <span class='webrupee'>₹</span>8-10 lakh crore.(HT File)
LIC, once listed, has the potential to become one of the biggest domestic companies by market capitalization with an estimated valuation of 8-10 lakh crore.(HT File)
ByRajeev Jayaswal, New Delhi

The Union government may not launch the initial public offering (IPO) of the Life Insurance Corporation of India (LIC) in a hurry as market sentiment is adverse due to the war in Ukraine, and there’s time till middle of May to elicit a better response from overseas institutional investors, officials aware of the matter said.

Although the mega public offer through which the government intends to sell 5% stake in the life insurer to raise around 65,000 crore will impact its asset sale target for the 2021-22 financial year, the shortfall can be offset by tax revenues that have been quite robust, the officials said, requesting anonymity.

The government, which trimmed its divestment target by over 55% to 78,000 crore in 2021-22, has so far mopped up only 12,423.67 crore.

“The LIC IPO decision will be taken professionally, ensuring maximum investors’ participation, both retail and institutional,” one of the officials said. “The ongoing war between Russia and Ukraine have adversely impacted investor sentiment.”

The window to launch the IPO remains open till May 12, after which fresh regulatory approval will be required.

The offer is also made to non-residents, including foreign portfolio investors, eligible non-resident Indians, alternate investment funds and other eligible foreign investors, according to the draft red herring prospectus filed by the government on March 13.

“Even domestic retail investors seem cagey, also because of the year-end pressure. Hence, launching it in the next financial year appears more logical. A final decision will, however, be taken after consulting experts advising the IPO,” a second official said.

The war in eastern Europe has triggered sanctions by the US and its European allies against Russia, which has disrupted global supply chain and aggravated inflation. Although the Indian stock markets have largely recovered the initial losses, both domestic and international investors are nervous.

Hence the timing is not appropriate to launch IPO immediately only to meet the March 31 deadline, the official added. The benchmark Sensex index on Friday closed with 0.15% gain at 55,550.30 points.

“Sentiments of foreign investors’ are also important,” he said, referring to a recent cabinet decision.

The cabinet chaired by Prime Minister Narendra Modi on February 26 allowed up to 20% foreign direct investment in the state-run insurer under the automatic route, paving the way for participation of overseas funds what is expected to be in the country’s biggest IPO by far.

The government could raise between 65,000 crore and 70,000 crore through the IPO, according to analysts. The embedded value of India’s largest insurer is pegged at 5.4 lakh crore.

The draft offer document does not, however, disclose the market valuation of LIC. It could be around 16 lakh crore, analysts said. LIC’s IPO involves over 316 million shares.

LIC is India’s leading insurance company, with more than 30 lakh crore in assets under management. The number of individuals paying premium for life policies was more than 210 million, as on February 28, official data showed. Its market share in terms of the number of policies issued was 74.58%, and 66.18% in terms of first-year premium income in 2020-21.

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