The Centre will take a call on the much-awaited Life Insurance Corporation’s (LIC) initial public offer (IPO) in a couple of days, a senior official told FE. The size of the offer and valuation will rely on the feedback from prospective anchor investors and the equity market conditions, he added.
The government had indicated in the draft red herring prospectus that it will sell a 5% stake in the insurer, but the source said the stake on offer could be raised to 5.5-6% depending on investor appetite. The final offer document will specify the change in the offer size, if any.
“A call will be taken by Friday on how to proceed further on the LIC IPO, its timing etc,” the official said. While most of the groundwork is over, the response of the potential anchor investors on the pricing of the issue will also be reviewed this week before taking a final decision, the official said.
The government had in the revised Budget estimate for FY22 had estimated capital receipts of 60,000 crore from LIC stake sale. Some reports have suggested recently the government is open to a lower valuation if it is necessary to generate higher investor demand in view of the market volatility. However, the official said these reports on valuation were 'speculative.' Halting its five-day fall, the BSE Sensex jumped 574.35 points or 1.02% to finish at 57,037.50 on Wednesday. The LIC IPO was originally scheduled for March. It got delayed due to market volatility after Ukraine-Russia war broke out. With the current set of approvals from Sebi, LIC can bring the IPO before May 12. If it is delayed beyond this date, the estimated embedded value (EV) of the insurer will have to be reviewed. The EV is estimated at5.4 trillion in the draft prospectus. The valuation of life insurance companies is typically three times their EVs.
Merchant bankers to the IPO have got quotes from potential anchor investors including sovereign wealth funds with regard to how much they are willing invest in the IPO and at what price. A pre-IPO placement of shares will be made in favour of anchor investors before the IPO opens for public subscription, setting the stage for pricing of the issue.
LIC has reserved 50% of the net offer for qualified institutional buyers or QIBs, 15% for non-institutional bidders and 35% for retail individual bidders in accordance with the Sebi regulations. Foreign institutional investors would come in the QIB portion.
According to the norms, about 60% of the QIB portion can be allocated to anchor investors, giving confidence to retail and other investors to participate in the issue. Earlier this month, the government amended foreign direct investment (FDI) rules to allow 20% FDI in LIC, enabling provision to attract long term global investors.