No Aramco Moment With LIC IPO As Govt Cuts Issue Size By One-Third And Valuation By Half

The state-run insurer to raise Rs 21,000 crore by diluting 3.5 per cent stake, still India’s largest IPO overtaking Paytm’s IPO

Mumbai: While many bankers in Mumbai to bureaucrats in touted the initial public offering (IPO) of Life Insurance Corporation of India (LIC), as India’s “Aramco moment,” but the gas fizzled out of IPO ahead of its launch as the government cut the issue size by one-third and valuation by half, after testing investors’ appetite in jittery markets, partially due to the Russia-Ukraine war.

The government wanted to raise as much as Rs 65,000 crore by diluting 5 per cent stake in the insurance giant, valuing it over Rs 13 lakh crore, which could have made it India’s second-most valued firm after Reliance Industries (RIL), when it filed the draft red herring prospectus (DRHP) on February 13, 2022, making it India’s biggest-ever IPO and the fourth-biggest IPO of any insurer globally. 

Saudi Arabian Oil Co (Aramco) came out with the world’s biggest IPO in 2019, when the Saudi government raised $25.6 billion by diluting just 1.5 per cent stake, valuing the company at $1.7 trillion.

But adverse market conditions forced the government to cut the issue size by one-third and valuation by half to make it “attractive” for the investors, when the foreign investors are seen pulling out of the Indian market.

The government now plans to raise Rs 21,000 crore by diluting 3.5 per cent stake in LIC, valuing the insurance behemoth Rs 6 lakh crore.

In spite of the reduced offer size, LIC IPO is set to be the biggest in the country and its valuation  is “fair and attractive”, according to Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey.

Fintech firm Paytm's IPO of Rs 18,300 crore ($2.47 billion) is the country's largest IPO so far, surging past miner Coal India's massive IPO more than a decade ago. But Paytm listed at discount and is currently trading at Rs 592 or over 72 per cent discount to the offer price and the government didn’t want LIC to go the Paytm way.

“This (LIC IPO) is right sized, considering the capital market environment and will not crowd out capital supply given the current market environment. The decision to list now has taken into account the combination of multiple factors, including market demand, stabilizing market conditions, reducing volatility, domestic flows and the corporation's financial performance,” said Pandey, justifying the prudence and the necessity of launching an IPO of a crown jewel like LIC.

The insurance behemoth has fixed the price band at Rs 902 to Rs 949 per equity share for its maiden public offer. The IPO will open on Wednesday, 4 May, 2022 for subscription and close on Monday, 9 May, 2022. Investors can bid for a minimum of 15 Equity Shares and in multiples of 15 Equity Shares thereafter, said a LIC statement.

LIC, India's largest life insurer, had a market share of 61.6 per cent in terms of premiums or GWP, 61.4 per cent in terms of New Business Premium (or NBP), 71.8 per cent in terms of number of individual policies issued, and 88.8 per cent in terms of number of group policies issued, for the nine months ended December 31, 2021, according to CRISIL Report.

LIC is ubiquitous as the biggest insurance company in India and being a brand name recognised in every household, numerous retail investors are likely to subscribe to the issue. Paytm Money CEO Varun Sridhar believes that this IPO will result in the greatest month for Indian capital markets.

“Given that LIC policyholders will also receive a Rs 60 discount while employees and retail investors will get a Rs 45 discount, we may see many new investors from smaller cities and towns also opening their demat accounts only to apply for the LIC IPO.  With the LIC IPO coming up, we believe that May will be a record month for demat account openings in recent times. It is a milestone event for Indian Capital markets and is expected to bring millions of new investors,” said Sridhar.