India’s state-run insurance firm Life Insurance Corporation of India (LIC) is set to launch an initial public offering of $8 billion against a 5 per cent stake of the company and it has filed draft papers for the same with the country’s regulator. This IPO dwarfs the previously largest IPO in the third-largest economy of Asia by a large margin.
The offering is critical to the Narendra Modi government’s efforts to fulfill its significantly slashed divestment objective for the current fiscal year, and it will serve as a barometer for the effectiveness of the pro-market policies of the federal government.
According to the draft prospectus submitted on Sunday to the regulator, India’s largest insurance company will be divesting 316.25 million shares or about 5 per cent of the post-offer paid-up share capital.
According to reports quoting government sources, the federal government could generate a little more than 600 billion Indian rupees ($7.97 billion) through the sale, down from the initial goal of roughly 900 billion rupees. The offering was lowered due to market conditions.
The listing is expected to be finalised by the end of March, according to the source.
A total value of 5.39 trillion Indian rupees ($71.56 billion) was also disclosed in the petition. The embedded value is a crucial financial indicator for insurers and a measure of future cash flows in life insurance firms.
The IPO is considered as a barometer of investor enthusiasm for fresh offerings, as a number of businesses that went public last year are now trading below their IPO pricing due to concerns about high valuations and expected interest rate hikes by global central banks to combat inflationary pressures.
Foreign investors are withdrawing cash from the domestic market, thus the expected listing is timely.
The life insurance behemoth, which has more than 105,000 full-time workers at the end of September and is one of the top five global insurers, manages more than $500 billion in assets and controls more than 60% of India’s life insurance premium market.
With a brand worth of $8.66 billion according to Brand Finance, LIC has more than 280 million policies in force.
Though the government’s lowered privatisation aim of $10.5 billion has generated doubts about the size of the proposed LIC IPO, government officials have stated that investors should not believe the revised target indicates a smaller than projected LIC IPO.
The most recent IPO by a life insurer in India was HDFC Life Insurance, which raised $1.3 billion in 2017. Since its IPO, its stock has nearly doubled in value.
LIC’s proposed IPO will be dwarfed by Paytm’s $2.5 billion IPO last year, which set a new record.
Despite the fact that Paytm’s IPO was the country’s largest at the time, the stock has now plunged by 58 per cent from its IPO price.
According to Refinitiv statistics, Indian companies raised a record $16.6 billion through initial share sales in 2021, up 52 per cent from the previous high in 2017.
The LIC IPO might propel it into the top five largest corporations in India by market valuation, joining Reliance Industries, TCS, HDFC Bank, and Infosys.