LIC IPO: Foreign Institutional Investors Shun Mega Subscription Amid Market Volatility

The government is looking to raise Rs 21,000 crore from the share sale by divesting 3.5 per cent of its stake in LIC

LIC has fixed the price band at Rs 902-949 per equity share. Image: Getty

Source : Getty

New Delhi: The subscription of mega initial public offering (IPO) of Life Insurance Corporation of India (LIC), which will come to a close on Monday, saw foreign institutional investors (FIIs) have steered off deeming it too expensive amid volatile market conditions and currency risks, a report by Bloomberg said.

The subscription period of the state-run insurance behemoth will be over in just a few hours. The FIIs, so far, have put in orders for just 8 per cent of the shares set aside for all institutional buyers.

The report mentioned that the anchor portion of the IPO drew in sovereign funds from Norway and Singapore, while most of the shares went to domestic mutual funds.

Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in, said, “Foreign institutional investors have been pulling out heavily in the secondary market since October. The Fed rate hike and the recent slide in the rupee against the dollar further enhances risks of currency depreciation that can erode their asset price gains in India. So there is little reason for them to participate in an IPO, large as it may be.”

The government is looking to raise Rs 21,000 crore from the share sale by divesting 3.5 per cent of its stake in the insurance company.

Earlier, the Centre wanted to offload 5 per cent stake in LIC. But, because of the ongoing war between Russia and Ukraine, coupled with volatile market conditions and rising inflation rates, the government was compelled to postpone the IPO until May.

The listing of LIC is also dubbed India’s ‘Aramco moment’ in reference to Gulf oil giant Saudi Arabian Oil company’s $29.4 billion listing in 2019, the world’s largest.

However, the float of LIC has a resemblance with the Aramco IPO. Not in scale or size but in its reliance on domestic investors after foreign buyers deemed the float too expensive.

The government has cut the fundraising of the IPO by 60 per cent due to the factors mentioned above. This has dented interest of foreign investors. The government has also cut the valuation that would be about Rs 6 lakh crore at the top of the price range.

There’s one good news for the LIC IPO.

While FIIs have shunned the deal, retail buyers have been piling in. According to the BSE data, LIC policyholders placed bids for over five times the shares reserved for them, while the employee portion received orders for four times the amount available.

The insurance behemoth has fixed the price band at Rs 902-949 per equity share. The offer includes a reservation for eligible employees and policyholders. The retail investors and employees will get a discount of Rs 45 per equity share, while the policyholders will get a discount of Rs 60 per equity share.