Mumbai : Life Insurance Corporation of India A Rs 21,000-crore initial public offering is set to test investor appetite next week amid early morning markets, as foreign investors withdraw from riskier emerging markets following the Russian invasion of Ukraine.
Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM), told reporters in Mumbai on Wednesday that the government’s decision to reduce the size of the IPO and lower valuation expectations was taken based on the limited market environment. Was.
The government initially planned to offload at least 5% of LIC through a share sale, but the state in the weeks following Russia’s invasion of Ukraine recorded significant losses in stock markets around the world. Reduced the size of the stake sale in the operated insurer to 3.5%. 24 February. It has also lowered the valuation significantly to make the IPO more attractive to investors. The government has decided to go ahead with the share sale, though after a brief delay, several equity-market transactions were withdrawn as companies and bankers pressed the pause button, despite unfavorable market conditions.
“It is the right size given the current capital market environment and the current environmental constraints will not lead to congestion in capital and monetary supply,” Pandey said. “Valuation is done by optimizing the situation, devising the best marketing strategy, reaching out to the right investors.” way and the right order, structuring the deal appropriately and selecting the optimal market window.”
LIC’s IPO opens for subscription on May 4 and will close on May 9, with shares in the price range of 902-949 each.
IPO gives importance to LIC 6 trillion, almost close to its embedded valuation and much less than from 10 trillion 15 trillion range that news reports said it would be when the company filed its draft IPO papers in February. Its embedded valuations in LIC’s draft IPO documents, a measure primarily used by life insurers, have been estimated as follows: 5.39 trillion. Many listed life insurance companies in India trade at 2-3 times their embedded valuations.
Pandey said the valuation was done through an iterative process with extensive feedback from investors.
“It is not correct to say that the assessment three months ago was this or that; These are all speculations. The evaluation process is essentially an exploration process, because in this case you don’t know exactly what we’re comparing. Is LIC at par with HDFC Life or SBI Life or at par with some of its Chinese counterparts, or at par with Prudential or AIA. There has been extensive feedback and through an iterative process, we have worked out an evaluation. I would say it is a fair and attractive valuation,” Pandey said.
He said it is important for the government to make valuations attractive as the Center aims to enable lakhs of Indians to participate in this IPO process and the value of LIC is open. “This is an opportunity for Indians to participate in wealth creation at one of India’s most valuable corporations. We expect significant retail participation. The valuation reflects this opportunity, and the optimum size provides strong demand and aftermarket performance. We want to champion LIC as a long-term value creator in the capital market.”
Commenting on the decision to list LIC at a time when capital markets are volatile globally, Pandey said the decision took into account factors like demand, a solid anchor book, stabilizing market conditions, reducing volatility. This includes domestic flows and financial performance of LIC.
“There is a fair amount of domestic demand; Demand from abroad is likely to decline. So, in this constrained environment, it was best to call upon the exact size of the issue. We can list it at 3.5% and going forward, we can sell more,” he said.
Pandey said the government has, however, committed not to bring any follow-on public offerings for 12 months.
Given the low dilution in the IPO, it will be challenging for LIC to meet the 25% minimum public shareholding (MPS) regulation within five years of listing.
“Given the market cap of the company, we have to consider the crowding-out effect when thinking about 25% MPS over five years. There will be constraints and this may not be possible. So we will talk at an appropriate time and resolve it accordingly. This will affect the markets and minority shareholders and we have to keep that in mind.”