LIC IPO DRHP approved by SEBI in record 22 days

In what would go down as the quickest approval of a draft red herring prospectus filed by a potential issuer, SEBI cleared the IPO of Life Insurance Corporation of India in 22 days flat. This was despite the changes that happened at the top in SEBI.

The normal time taken by SEBI for issuing observations (equivalent to SEBI approval of the IPO) takes 2 to 3 months. In this case, the approval came in record time of 22 days considering the urgency.

It may be recollected that in mid-February, DIPAM had filed the draft red herring prospectus (DRHP) with SEBI for the sale of 5% stake of the government of India to the public. As per the terms of the issue stated in the DRHP, government will sell 5% stake in LIC, or 31.6 crore shares of LIC to the public. The entire issue will be by way of an offer for sale (OFS) and there will be no fresh issue portion in the LIC IPO.

However, the real million dollar question is whether the government would be really keen to go ahead with the IPO at this point of time. Most likely, LIC may not launch its IPO immediately considering the volatile market conditions, the intensive FPI selling and the surge in crude oil prices. Investment bankers are of the considered view that they would want to wait till the market sentiment improves and the volatility stabilizes.

The reasons are not far to seek. At around Rs.65,000 crore, it is 3.5 times the largest issue that has ever been handled in India (that of Paytm). That means, robust retail, HNI and institutional participation is a must.

Even considering that domestic institutions will be more than willing to support the IPO, a good dose of FPI interest is mandatory. The government would not be too keen to go ahead with the IPO unless that condition is satisfied.

The macros are far from enticing at this point of time. Crude oil prices have rallied by 80% in the last 3 months and are close to historic highs. FPIs have sold more than $25 billion since October. To top it all, the Nifty and the Sensex have lost close to 15% from their recent peaks, with 40 out of the 50 Nifty stocks falling more than the benchmark index. That is hardly a conducive scenario to plan a mega IPO, the largest in history.

More than anything else, the LIC IPO will be a litmus test of the appetite and depth of the domestic market as it is the largest share sale seen in the history of Indian capital markets.

The government would be conscious of the fact, that the previous 3 biggest IPOs are all quoting well below their issue prices. That is not a very comforting thought for the government to commence the IPO process at such short notice. 

Of course, LIC has some unique advantages in that it has over 25 crore policy holders and is one of the most recognizable and trusted brands.

However, the 10 investment bankers to the issue are not inclined to go ahead with the IPO at this juncture. The room for error and the leeway for failure is very limited in the LIC IPO. The best choice for the government to give this financial year a skip and focus on FY23. For now, we await the final word.