The Government of India has proposed to bring in nearly two dozen anchor investors to inject Rs. 25000 crores in the Life Insurance Corp. of India IPO.
The broad structure of LIC will undergo a change followed by the adoption of new accounting norms even before the IPO kick starts.
As per the government report, anchor investors will be invited once the actuarial valuation exercise is carried out and the IPO pricing is ready.
Role of anchor investors in this arrangement
Ideally, anchor investors are brought in to boost investors’ confidence and help determine the demand for IPO. They will purchase a portion of LIC shares for qualified institutional buyers (QIBs).
If QIB investors decide to pay an amount that is less than what the market is willing to for IPO shares, anchor investors have to invest accordingly to match the market price level. Conversely, if the market manifests a low demand, the extra money is not refunded to anchor investors.
However, this state-run insurer’s restructured model and changes to accommodate anchor investor may trigger concerns among IPO investors. Investors might be apprehensive about LIC’s ability to sustain growth under this restructuring.
LIC IPO: A key arch in divestment plans
LIC IPO is crucial for the government’s disinvestment plan to generate non-tax revenue. Additionally, it is anticipated to play a key role in narrowing India’s fiscal deficit and compensating for budgetary expenses outlined by the exchequer.
Indeed, this disinvestment is considered a catalyst for India’s long-term growth and strengthening of its capital market.
So far, both SEBI and the government has been trying to formulate favourable rules for this IPO. Simultaneously, LIC is trying to align its compliance process with listing norms and planning to make necessary changes accepted at the constitutional level.
The LIC IPO’s size is yet to be determined. It can be worked out once its embedded valuation report is ready. Its draft red herring prospectus is expected to be filled within the next 6 months. The delay seems to be a result of not carrying out embedded value calculations at regular intervals.
Regardless, the current estimations are formed on the basis of LIC’s AUM, which, in turn, is compared with the assets of this state-run insurer’s peers like ICICI Prudential Life Insurance and HDFC Life.
Also, it is expected that anchor investors can be beneficial for LIC’s listing and may help streamline hiccups concerning issue size and growth stability of the restructured entity.