State-owned National Insurance Company (NIC) is likely to approach capital market regulator Sebi in February next year to float an initial public offering (IPO) by the end of the fourth quarter this fiscal, says its chairman-cum-managing director K Sanath Kumar. In an interview with Mithun Dasgupta, Kumar expresses hope that the upcoming Union Budget would provide some buoyancy to the market, and there would be enough appetite for the public offering among retail investors. The proceeds from the fresh issue of shares would drive the growth plans of the country’s second-largest general insurance company for the next five years. Excerpts:
Please tell us about the latest developments on NIC’s upcoming IPO.

We will have two components of the IPO. One is fresh offer of shares, that money will come to us. And the other is the dilution of government’s stake in the company. Talks are going on on what would be the number of fresh shares and the quantum of government equity dilution. We have applied to the IRDA (Insurance Regulatory and Development Authority) for in-principle approval, and we understand that in the last board meet they have cleared that. We are waiting for their directions. Once the directions come, we will formally start the process — identifying merchant bankers and legal agencies, preparing for the red herring prospectus and approaching Sebi for approval. We have already got the government’s approval. We are hoping to hit the market by the end of the fourth quarter this fiscal.

What could be the size of the IPO and what could be the stake dilution by the government?

We need to work on the issue size, but it would not be as big as what the New India Assurance (Rs 9,600 crore) and GIC Re (Rs 11,372 crore) had. Because that was more from the government’s dilution of shares in these two companies, the Centre raised a lot of money out of that. Ours would be a little lesser than that. It is up to the government as to how much they would divest in our case. The thing is I have generally seen 10-12% stake dilutions in the initial offers.

But both the IPOs, launched by the two state-owned general insurers in the last two months, got lukewarm response from retail investors…

See, insurance is a slightly complex topic. This is the first time that the insurance companies are coming to the (capital) market. So, I think it will take time for the retail market to really identify the complexities of the insurance business. But you would see a lot of good tractions from the institutional investors; those IPOs were oversubscribed basically by institutional investors. I think that was expected. There should have been a little more retail touch, but that will probably develop as the secondary market develops.

While hitting the market, will you ensure greater retail participation in it?

We hope to… we have to really work on how to earmark the allotments for retail, foreign institutional investors and domestic institutional investors. That will be guided by the merchant bankers and subject matter specialists. We will be working closely with DIPAM (Department of Investment and Public Asset Management), which overseas IPOs in all public sectors. It will be a part of our IPO committee as well. DIPAM and the Department of Financial Services would be working with us on these matters.

The amount of fund to be raised through the fresh issue of shares will accrue to your company. What are your plans with that proceeds?

That is supposed to drive our next five years’ growth plans. You need capital in insurance business to grow. Your growth is constrained by the capital you have. We have done our in-house working. We need capital to grow for the next five years, depending on the options available to us… we would like to have a growth of around 10-12%. We would like to touch 15% market share over the period of five years from around 11% at present. How to factor it over the five years will depend on the capital that we manage to raise. Our ability to raise the capital will be tested in the market.

When are you likely to approach Sebi for its approval to float the IPO?

If you want to launch it by March next year, you will have to give at least a month to them. Otherwise, they will not allow us.
NIC will be hitting the capital market well after the public offerings from GIC Re and New India Assurance in October and November, respectively. Further, a few companies are also expected to raise capital using the initial public offering route by March next year. Reliance General Insurance has already received Sebi nod to float its offering.

What is your take on the timing of your offering? Will it be a perfect time to launch your IPO in March?

By that time the Budget will be out and we think hopefully that will give some buoyancy to the market. So, I think there will be enough appetite among the retail investors of insurance. There will be enough IPOs in the market, so people would be understanding the insurance better. And suppose we pitch very strongly on retail market, I think we will have a niche place. The capital market will be little crowded in March, so it could hamper investor appetite. But we will go for a different take. New India Assurance hit the market as the leader of the general insurance sector. We will hit the market as a company which has all the systems in place, we are ready to grow and our capital will grow. So, your (investors’) investment will only grow with us.