Life Insurance Corporation (LIC) has fixed the price band for its initial public offer (IPO) at Rs 902-949 a share. The issue, which will remain open for retail investors from May 4 to 9, will enable the government to offload 3.5% stake in the insurer for Rs 21,000 crore, according to an official source.
The insurer filed the red herring prospectus (RHP) with the Securities and Exchange Board of India (Sebi) late Tuesday.
The IPO will still be the country’s largest though the issue size is lower than the 5% mentioned by the insurer in the draft IPO papers filed with the regulator on February 13. The valuation is also almost half the level indicated by the Centre in the FY22 Budget.
For the anchor investors, the issue will open on May 2. Another source said thanks to ‘strong demand’ in the form of informal bids from domestic institutional investors, including mutual funds, the anchor book looked subscribed by 1.6 times as of Tuesday. “We, however, saw no point in going for a 5% stake sale after seeing the total demand till Tuesday from anchor investors,” the second source added.
The insurer’s board, which met on Tuesday in Mumbai, also approved a discount of Rs 60/share for policyholders for whom 22.1 million shares, or 10% of the total offer size, has been reserved. The discount is Rs 45/share for retail investors and employees, and for the latter, 1.5 million shares or 0.68% of the total issue issue size will be reserved.
The net of the two categories — policyholders and employees, 35% — is set aside for retail investors, while 50% is kept for qualified institutional buyers (QIBs) and 15% for non-institutional investors. As much as 60% of QIBs portion is reserved for anchor investors.
According to the sources, the minimum bid size for the IPO will be 15 shares.
The reduced size of the IPO from 5% in the draft offer document, and the lower valuation are prompted by feedback from institutional investors, and recent capital outflows from the Indian and other emerging-economy markets following the Russia-Ukraine war.
The valuation of the insurance behemoth is set at 1.1 times its embedded value of Rs 5.4 trillion arrived at by Milliman Advisors.
Despite FPIs pulling out money from Indian and other emerging markets due to lower risk appetite, the government has decided to go ahead with the LIC IPO, as it did not want to disappoint domestic retail investors, who it feels have been eagerly waiting for the issue. By going in for only 3.5% stake sale in the IPO, the government hopes to capitalise on gains in valuation in a year or so, when it will likely come out with a follow-on offer.
The government reckons that the gap between IPO and the subsequent issue will help LIC find its true value. The insurer will also display its business growth potential in non-participatory policies segment, it feels.