Government has time till 12th May to launch LIC IPO
The government of India now has time till the 12th of May to launch the LIC IPO without seeking any fresh approvals. The current approval for the LIC IPO given by SEBI will be valid till 12th May and during this period, the government can go ahead with its IPO without filing any further documents or seeking fresh approval from SEBI. That gives another good 2 months to thoroughly plan the process and the marketing of the LIC IPO.
When the government had filed for the LIC IPO on 12th February, it had filed with financial numbers as of the September quarter. This data would be valid for use only up to 12th May.
If the government is not able to open the IPO of LIC by 12th May, then it means two things. Firstly, the government will have to again file the papers with SEBI along with updated results of the December quarter. Also, the embedded value has to be updated again.
The LIC IPO was originally planned to be launched in March and the government of India had received all requisite statutory approvals on time. However, the Russia-Ukraine crisis has derailed the plans.
On the one hand, it has resulted in a spike in crude oil prices, which has serious implications for the Indian trade deficit situation, the fiscal deficit position and above all, the level of consumer inflation in India. In this light, the IPO was not feasible.
In its prospectus filing with SEBI, the government had stated that the embedded value of LIC had been pegged at Rs.540,000 crore. However, this is based as of September 2021 data.
If the 12th May deadline is crossed then this embedded value will have to be recalculated by Milliman Advisors using updated December 2021.
Last time around, it was the embedded value estimation that had taken the longest, so LIC would not want to get into that again.
The general practice is to price the IPO of an insurance at around 2.5 times to 3 times the embedded value. That would have pegged the valuation of LIC in the range between Rs.13.50 trillion and Rs.16.20 trillion.
That is approximately the valuation of around $190-200 billion that LIC is targeting. For now, it almost looks like an acknowledgement that the IPO has bene well and truly put off for the time being due to operational hassles.
The government would also not like to take any chances with the LIC IPO being the largest and most prestigious IPOs. It is nearly 3.5 times the size of the largest IPO till date i.e. Paytm and so the room for error is almost nil.
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