10 things to know about the LIC IPO
As the LIC board prepares to announce the dates of the LIC IPO on 26th April and the details about the price band on 27th April, there are reliable reports about the size and content of the IPO.
10 things that investors should know about the forthcoming LIC IPO
1. Latest reports indicate that the size of the LIC IPO has been cut from 5% of the equity base of LIC to just about 3.5% of the equity base. However, the government is likely to retain the green shoe option, should the response be very good.
2. The IPO size is expected to be Rs.21,000 crore for the 3.5% offer for sale by the government. This would still be the largest IPO in Indian history but it will now be just about 15% larger than the Paytm IPO, which had collected Rs.18,300 crore.
3. The IPO is expected to hit the market on the 04th of May and close for subscription on 09th of May. There were will be two bank trading holidays in between but the investment bankers have decided to keep the IPO open for 4 days.
4. There has been a lowering of valuations, stake sale and a lowering of the size of the issue on account of the changed market conditions like Ukraine War, the hawkishness of the Fed and rampant inflation in commodities. The March date had to be postponed.
5. By selling a 3.5% stake to raise around Rs.21,000 crore, the government will be valuing the LIC business at around Rs.600,000 crore. This is nearly half the original valuation of Rs.12,000,000 crore that the government had sought.
6. Milliman Advisors had pegged the embedded valuation at Rs.540,000 crore so the current IPO valuation is just about 1.1 times the embedded value (measured by actuarial valuation), which is much lower than what global peers normally charge.
7. The decision to cut the size of the IPO was taken after the road shows conducted with global investors, assessing the appetite of global and local investors as well as based on the advice of the investment bankers, who believed that a steeply priced issue would be very difficult to sell in the current market conditions.
8. The original reservation of 5% for employees and another 10% for policyholders is likely to continue. LIC has been counting heavily on its network of over 14 lakh agents and its 25 crore policyholders to show substantial interest in the IPO of LIC. This would still be among the largest insurance company IPOs in the world.
9. In FY22 due to the LIC IPO not going through, the disinvestment collections for the year were just about Rs.13,531 crore. This is grossly short of the original disinvestment target of Rs.175,000 core for FY22 and Rs.78,000 crore as per the revised estimate.
In FY22, the government just about collected 15% of the revised disinvestment estimates. Hence the divestment targets for FY23 has been scaled down to Rs.65,000 crore with LIC and BPCL divestment being the major triggers.
10. LIC still dominates the life insurance business in India, even 20 years after private companies were permitted to enter life insurance business. It has premium collection share of close to 70%. However, the net profits of LIC has been quite low and has in fact been at par with the private players.
That had raised questions over the valuations plus the fact that the IPO would make LIC the second most valuable insurer in the world.
The finer details of the IPO will only be made available on 27th, when the price band and the details of number of shares and employee and policyholder reservation details are expected to be announced.
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