LIC IPO: All We Know So Far

Amid the flurry of initial public offers (IPO), investors' focus has been on the companies which came and successfully raised capital through their public offers.

It would seem that their focus from India's biggest IPO of LIC has shifted as government completes all the necessary requirements.

But that's not true. There is tremendous excitement after the centre informed about the financial position of LIC and the changes in the structure of the insurance company ahead of the proposed IPO.

As per an official, investors are keen to know the embedded value of LIC and the value of its new business.

Nothing is finalised yet investors want more data.

As the wait for Life Insurance Corp's (LIC) mega IPO continues, there are important updates about it. Let's have a look at the details and what we know about LIC's IPO so far.

Tentative dates

The government plans to complete LIC's IPO in the current fiscal, as late as March 2022.

While the official dates are yet to be announced, the government said that LIC's IPO would be rolled out after it completes disinvestment in three other PSUs.

National Fertilisers, Mishra Dhatu Nigam, and Rashtriya Chemical and Fertilisers will be divested through an offer for sale (OFS) within the next quarter before the LIC IPO.

The Union Cabinet recently approved the disinvestment of equity in LIC and the process is on to appoint merchant bankers to launch the IPO.

A panel headed by Finance Minister Nirmala Sitharaman will decide on the size of the share sale.

For LIC's IPO, the centre amended the LIC Act of 1956. After the amendment, like any other listed company, the corporation, now governed by the Companies Act and markets regulator Act (post-IPO), has to prepare its quarterly balance sheet with profit or loss figures and make public key developments.

The markets regulator has also amended the rules to allow a company with a valuation of more than Rs 1 lakh crore to go for IPO equivalent to 5% of the total value.

LIC has appointed Arijit Basu, former MD of State Bank of India (SBI) and former MD & CEO of SBI Life Insurance, as a consultant to help launch the IPO.

After the IPO, about 60% of the insurance business will be with listed companies.

Tug of war between investment banks

Eighteen investment banks are competing to manage the IPO of LIC.

Domestic banks include Kotak Mahindra Capital, Axis Capital, ICICI Securities, JM Financial, DAM Capital, Edelweiss, HDFC Bank, Yes Securities, SBI Capital, and IIFL.

Meanwhile, foreign investment banks in the running include Citi, Bank of America, HSBC, Goldman Sachs, JPMorgan, BNP Paribas, Nomura, and CLSA.

Up to ten banks will be selected for the IPO and they will be scored on various parameters such as past experience of handling IPOs of over Rs 50 bn, expertise in life insurance, qualification of team members, marketing strategy, strength in drawing retail participation, and global distribution capabilities.

Unlike in the past when banks would quote as low as Rs 1 to bag marquee government divestment deals, in the case of the LIC IPO, a minimum fee of Rs 10 m has been fixed for each bank in the final syndicate.

Pricing

Fixing the price band would be very vital here as the past experiences have not been very good.

In 2017, two general insurance companies, General Insurance Corporation of India and New India Assurance got listed.

New India Assurance shares were offered in the range Rs 770-800 while General Insurance Corporation shares were offered at Rs 912.

Both have fallen significantly since then. New India Assurance shares trade at Rs 161 (after today's 19% gain), while General Insurance at Rs 140.

Both companies issued one bonus share for every share held between June and July 2018 but even after that bonus, investors would suffer a loss of over 60% from their investment in the IPO.

10% reserved for policyholders

The government has given LIC policyholders a reason to cheer as 10% of the issue size would be reserved for them.

What's more, there could be a discount on the floor price too. At present, LIC policyholders have bought 289 m policies.

According to IPO norms, an issuer company can offer the shares to employees at a discount of a maximum 10% on the floor price at which the shares are offered to other categories.

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Split into two offerings?

Now, this is something new. Earlier this month, it was reported that LIC may split its IPO into two parts with a gap of a few months.

For example, it would offload certain percentage of the company's equity through a mega IPO and then, follow up the next year with a follow-on public offer (FPO) for another percentage stake.

When investors sought clarity from the government if it plans to do a pre-IPO placement, the government's said its stand, as of now, is clear that there won't be a pre-IPO placement.

LIC is planning to raise as much as Rs 1 lakh crore through the IPO.

Because the IPO size is so huge, there's a view that the market may not have capacity to absorb the entire issue in one go.

While another option also being discussed is that cornerstone investors, marquee asset managers can put in large funds ahead of the IPO.

Since several good quality companies came with their IPOs recently, a large amount of investors' funds would already be absorbed.

After all, the government wants to complete its ambitious target of Rs 1.75 lakh crore disinvestment in the current financial year.

And a majority of this would come from LIC's IPO.

Retail push

The split consideration is not the only new thing. The government and LIC are planning a campaign to give a big push to participation by retail investors. This includes opening of demat accounts for policyholders in IDBI Bank.

The campaign will aim to make retail investors as well as LIC policyholders aware of India's largest public offering.

To ensure that the quota is subscribed by policyholders, an awareness campaign is being planned that would include helping the policyholders in opening demat accounts through IDBI Bank, in which LIC owns over 49% stake.

The government is also planning big advertisement campaign ahead of LIC IPO launch.

Looking forward to the LIC IPO...

LIC is the largest life insurer in India with a total first-year premium of over Rs 1.84 lakh crore in the year ended March 2021. It commands a market share of over 66%.

LIC is the biggest institutional investor in India and has a huge investment portfolio.

It's employee reach is huge with 2.9 lakh employees, and a network of 22.78 lakh agents. As per industry insiders, even if the 22 lakh agents sell one additional policy in a year, it will add huge volume.

With its Rs 31 lakh crore balance sheet, LIC is India's second-largest financial services institution, next only to SBI with Rs 39.5 lakh crore assets.

Here's what Co-head of Research at Equitymaster and Editor of Tanushree Banerjee wrote about the LIC IPO in one of her editorials.

You can check out the entire piece here where Tanushree has shared a 4-Point checklist to invest in IPOs.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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