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LIC, India’s largest IPO ever, will test the appetite of foreign investors




The LIC logo dominates a couple of passers-by in Mumbai, India last week. The listing of the largest life insurance payer in the country is expected to yield $ 2.7 billion in the country’s largest listing so far.

Punit Paranjpe | Afp | Getty pictures

The dominant player in India̵[ads1]7;s life insurance market, Life Insurance Corporation, opens its first public offering for subscription on Wednesday in the country’s largest IPO ever.

The government is selling a 3.5% stake in state-owned insurance company LIC for an estimated $ 2.74 billion. The company will offer around 22.13 million shares for between 902 and 949 Indian rupees, or the equivalent of $ 11.78 to $ 12.39 per share at Tuesday’s exchange rates.

Trusted by millions and with enormous reach across the country, LIC is second only to bank deposits as a haven for savings in India. Between 2019 and 2021, LIC’s share of household financial savings grew by 3.4 percentage points to 19.4%. This is ahead of the pension funds’ share of 16.7 per cent, while bank deposits fell 7.1 percentage points to 29.4 per cent in the same period.

LIC had a monopoly in India’s insurance market until 2000 and is still the dominant player, having about two thirds of the life insurance market. In the financial year ending March 2021, LIC’s market share was 64.14%, marginally down from 66.22% the year before.

IPO time

The listing, originally planned for February, was postponed due to the war in Ukraine and the outflow of institutional funds from the stock market. Since January, about $ 16 billion in foreign capital has left Indian markets. The size of LIC’s offer, which was originally linked to 5%, was scaled down to 3.5%.

There is no perfect time for an IPO. Given the high liquidity in international markets, it is as good a time as any.

Arvind Virmani

Former Chief Financial Officer of the Government of India

The company’s current implicit valuation of $ 80 billion is about half of what it was in February, and is falling at least in part due to market conditions. It had previously planned to offer a 5% stake for around $ 8 billion.

In a conversation with CNBC, former chief economic adviser to the Government of India, Arvind Virmani, rejected talk that the listing was poorly timed.

“There is no perfect time for an IPO. Given the high liquidity in international markets, it is as good a time as any,” he said.

Foreign investors

Of the shares offered, 20% are open to foreign investors and 10% are earmarked for policyholders.

LIC, which has an estimated base of 250 million policyholders, is an asset-rich organization. As of March 2021, LIC’s asset base had exceeded $ 520 billion, with investments of $ 503 billion and a life fund of $ 470.70 billion.

The complexity and scope of the LIC IPO signals the government’s intention to go one step further than previous governments.

Suyash Rai

Deputy Director and Fellow, Carnegie India

In an interview with CNBC, Carnegie India’s Deputy CEO, Suyash Rai, LIC said the IPO gives domestic and foreign investors an opportunity to invest in a company that controls about two-thirds of India’s life insurance market. He said that although the listing is a “continuation of a decades-old policy of listing public finance firms,” ​​LIC still stands out.

“The complexity and scope of the LIC IPO signals the government’s intention to go one step further than previous governments,” Rai said.

As an indication of its commitment to reforms in the financial sector, the government last year raised foreign equity in insurance to 74% from 49%.

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