According to sources, India’s biggest insurer, Life Insurance Corporation, is expected to publish a draft prospectus by the end of this month and begin offering public shares by mid-March.
Officials are working on valuing the business, which handles more than $450 billion in assets, and will release a draft IPO prospectus for investors once that is completed. “As soon as the final embedded value is conveyed, we will be ready to submit the draught prospectus,” one of the banking sources said. They also added, “We are working on a timeframe of accomplishing that by month-end,”
The ultimate valuation of LIC will be determined by the embedded value, which is a measure of future cash flows in life insurance businesses and a fundamental financial indicator for insurers. LIC controls the bulk of the Indian life insurance industry, and the government is hoping that earnings from the IPO would help close a budget shortfall this fiscal year. The state-run company’s operations will also become more transparent as a result of the listing.
In addition to Singapore, the insurance behemoth has partner businesses in Kenya, Bahrain, Nepal, Sri Lanka, Bangladesh, and Saudi Arabia. “Roadshows are planned to begin next month, and given the present situation, it is likely that they will all be virtual,” the sources noted. The government picked eleven investment banks to manage the sale last year, including Citigroup, SBI Capital Markets, and Goldman Sachs.
Getting a Glimpse of a Giant
In India, LIC is a household name. The Mumbai-based corporation, which has 2,000 offices, more than 100,000 employees, and 286 million policies, has a presence in almost every part of the nation. The sheer enormity of LIC highlights the difficulties of listing something that is practically a black box.
Because the insurance only publishes its balance sheet once a year, there are no publicly accessible figures to determine its embedded value, which is calculated by combining the present value of future earnings with the net value of assets. Executives from Milliman and Ernst & Young in charge of the appraisal must comb through stacks of policies to account for variables such as mortalities, morbidities, lapses, and surrenders.
It’s difficult to make comparisons with rivals. LIC, which was created in 1956, is governed by separate legislation from the rest of the country’s insurance companies. According to a source familiar with the situation, LIC’s property assets were internally evaluated at $5.8 billion in March 2020, however, it’s unclear if this was adjusted to current market prices.
According to sources, LIC aims to release a draft IPO prospectus soon, which will include the embedded value as well as the number of shares for sale. “The appropriate internal valuation, which you would assume a corporation of that magnitude would conduct virtually yearly, hasn’t been done,” India’s finance minister said. She added, “All of the elements of maintaining valuations in tip-top shape — as well as the activities necessary to keep them valued correctly — are being completed right now.”
The listing has a March deadline imposed by Sitharaman. LIC will compete against India’s largest corporations, RIL and TCS, if investors agree to the government’s $203 billion valuation. The IPO would cover the majority of India’s $23.5 billion asset-sale objective, which is required to bridge the country’s increasing budget deficit, which is expected to reach 6.8% this year.
Investors are looking for answers
Another difficulty is persuading overseas investors that LIC would deliver on its promises. Many of Mumbai’s international investors wanted to know whether the listing would provide LIC more authority from the Indian government. The respondents stated they were first hesitant, observing that the firm had the appearance of a slow-moving arm of the establishment.
With arrangers collecting at least 10 million rupees ($135,000) in fees, the real revenues from the LIC deal would be small if the prestige of completing what would be India’s largest share sale were taken away, according to several of the sources.
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