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The public offering, according to the LIC DRHP (Draft Red Herring Prospectus), is entirely an offer for sale, with the government selling a 5 percent interest in LIC, or 31.6 crore shares.
LIC IPO Details
India is pressing on with the country's biggest initial public offering, a massive job made all the more difficult by inflationary fears and a difficult global market for investors. The government proposes to sell a 5% interest in Life Insurance Corporation of India in order to collect around $7.96 billion to help close a budget deficit. Even at a scaled-down version of its previous plan, which aimed for more than $10 billion at one time, the offering might be difficult to sell.
The listing, which is set to take place next month, will put the country's capital markets to the test at a time when global stocks have lost $5 trillion. Domestically, the situation is similarly tumultuous: foreign funders have been pulling money out of Indian markets for more than four months, and local investors are still stinging from losses on a high-profile IPO last year.
The LIC listing has a lot of people excited. Some analysts have dubbed the IPO India's Aramco moment, alluding to the Gulf oil giant's record-breaking $29.4 billion IPO in 2019. However, the sale of a 65-year-old insurance that has often been called upon to save banks and public assets has been stalled from the outset.
Since Finance Minister Nirmala Sitharaman unveiled the proposal in 2020, the IPO has been delayed by roughly a year. India would also need large commitments from anchor investors, who will contribute around a third of the total funds, similar to Aramco's IPO.
An additional 35%, or 210 billion rupees, will be offered to millions of regular investors, based on the anticipated value. Given the success of digital payments service Paytm last year, which managed to oversell its retail book by 1.7 times compared to a 2.8 times over-subscription for its institutional investors, that's a tough ask. LIC's retail book, on the other hand, will be 12 times greater.
According to experts, India's new goalpost for the IPO is lower than previous forecasts. According to the people, the government aimed to generate $5 billion to $13 billion from the listing last month. Officials scaled down their aspirations as the excitement faded and global markets began to sway.
Experts said it would take some finesse to persuade deep-pocketed foreign investors of LIC's financial power. For the most part, LIC is a mystery: its balance sheet is only released once a year. LIC's $8 billion IPO is over half of the entire amount raised in IPOs last year. With such a large swing, the over 40 firms that have filed plans for stock offerings in 2022 may find it difficult to compete.
In general, India's stock markets have fallen sharply in recent weeks, despite generating a record $18 billion from share sales in 2021. India lowered its asset-sale aim for the fiscal year ending March 31 to 780 billion rupees ($10.4 billion), less than half of its previous target of 1.75 trillion rupees.
On the BSE Sensex Index, around a third of new listings are trading below their offer prices. Paytm, which raised $2.5 billion in November, making it India's biggest IPO at the time, has dropped about 59% since its IPO, leaving many investors in the red.
Click to apply for LIC IPO
LIC IPO Review
To get through a difficult market, LIC is counting on its 1.3 million agents and more than 250 million policyholders. Last year, India's retail investors created a record number of new demat accounts, bringing the total number of equity investors in the country to 81 million, a big enough amount for the IPO to succeed. A strong listing might provide India a boost at a time when the country is still recovering from a surge of omicron illnesses and lockdowns.
Maximum retail involvement in LIC is a vital yardstick for success for the government, which is focusing on elections in India's bellwether state this month. The government has provided ordinary investors a 0.35 percent brokerage fee on allotment. It has also put aside up to 10% of its shares for LIC policyholders and may sell them at a discount.
According to experts, the IPO might ultimately bring greater responsibility and transparency to Indian markets. China Life, the biggest Chinese insurance business, was listed in 2004 and its shares surged along with the rest of the industry. And, if investment prospects in China dry up for the time being, the IPO may provide the ideal opportunity for giant global investors to park their capital in India, a nation that has trailed behind other major countries for many years.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.
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