Foreign Investor Appetite To Be Tested By Largest Ever Indian IPO By LIC

Life Insurance Corporation, India’s largest life insurance company, will begin accepting subscriptions for its initial public offering on Wednesday, making it the country’s largest-ever IPO.

For an estimated $2.74 billion, the government is selling a 3.5 per cent interest in state-owned insurance behemoth LIC. The company will sell around 22.13 million shares for 902 to 949 Indian rupees each, or $11.78 to $12.39 per share at Tuesday’s currency rates.

Millions of people trust LIC, and it has a huge reach across the country, making it India’s second-largest savings shelter after bank accounts. LIC’s proportion of household financial savings increased 3.4 percentage points to 19.4 per cent between 2019 and 2021.

This is higher than the 16.7 per cent share held by pension funds, while bank deposits fell 7.1 percentage points to 29.4 per cent during the same period.

LIC enjoyed a monopoly in India’s insurance business until 2000, and it is remains the most powerful participant, controlling almost two-thirds of the market. LIC’s market share was 64.14 percent in the fiscal year ended March 2021, down slightly from 66.22 per cent the previous year.

Because of the Ukraine crisis and the outflow of institutional capital from the stock market, the IPO, which was originally scheduled for February, was postponed. About $16 billion in foreign capital has departed Indian markets since January. The size of LIC’s offering, which was originally set at 5 per cent, has been reduced to 3.5 per cent.

There is no such thing as an ideal timing for an IPO. It’s as good a time as any, given the huge liquidity in international markets.

The company’s current indicated valuation of $80 billion is less than half of what it was in February, owing to market conditions, at least in part. It had earlier planned to sell a 5 per cent share in the company for $8 billion.

Arvind Virmani, the former chief economic counsellor to the Indian government, disputed claims that the IPO was poorly timed in an interview with the media.

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

A total of 20 percent of the shares are available to international investors, with the remaining 10  percent reserved for policyholders.

LIC is an asset-rich corporation with a policyholder base of 250 million people. LIC’s asset base had topped $520 billion as of March 2021, with investments totaling $503 billion and a life fund totaling $470.70 billion.

The LIC IPO’s intricacy and size indicate that the administration intends to go further than past governments.

Suyash Rai, deputy director at Carnegie India, said the LIC IPO allows domestic and global investors to invest in a company that controls around two-thirds of India’s life insurance industry. LIC, he said, stands out despite the listing being a “continuation of a decades-old policy of listing public sector financial enterprises.”

“The complexity and scale of the LIC IPO does signal the government’s intent to go one step further than previous governments,” Rai said.

Last year, the government increased foreign equity in insurance from 49 per cent to 74 per cent, demonstrating its commitment to financial sector reform.

(Adapted from reruters.com)

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