Amid the ongoing conflict between Russia and Ukrainethe central government may take a look at the timing of Life Insurance Corporation of India’s initial public offering (IPO) launchscheduled this month. In an interview, finance minister Nirmala Sitharaman told Bloomberg, “Ideally, I’d like to go ahead with it because we’d planned it for some time based purely on Indian considerations. But if global considerations warrant that I need to look at it, I wouldn’t mind looking at it again.”
Asked if the delay in LIC IPO would affect the divestment target of the central government, Sitharaman said, “When a private sector promoter takes this call, he has to only explain this to the company’s board. But I would have to explain it to the whole world.”
Fresh concerns about the timing of LIC IPO came into light after Russia had invaded Ukraine last week and its impact on the stock market.
LIC IPO: Cabinet Approved 20% FDI in LIC Under Auto Mode
To make India’s biggest IPO successful, the central government is leaving no stone unturned. Earlier last week, the Union Cabinet approved foreign direct investment (FDI) of up to 20 per cent under the automatic route in Life Insurance Corporation (LIC) of India, according to people aware of the development. The reform was crucial as the existing policy doesn’t have any specific provision for overseas investment in LIC.
“Since, as per the present FDI policy, the foreign inflows ceiling for public sector banks is 20 per cent under the government approval route, it has been decided to allow foreign investment of up to 20% for LIC and such other corporate bodies,” said source.
LIC IPO: What to Expect
The government is planning to offload 5 per cent stake or 316,249,885 equity in Life Insurance corporation of India. “The IPO is 100 per cent OFS by GOI and no fresh issue of shares by LIC. For filing valuation about 31.6 cr shares are on offer representing 5 per cent equity,” said department of investment and public asset management (DIPAM) secretary Tuhin Kanta Pandey. The embedded value of LIC IPO stood at around Rs 5.39 lakh crore as on September 30, 2021. The valuation of LIC IPO will be three to four times the embedded value.
LIC IPO: Huge Interest from New Investors
“Generally, the appetite for LIC IPO will be high from common and new investors given its mammoth public brand value. However, in the long-term, the end demand and performance will depend on its future growth, profitability, and sustenance of market share in the life insurance industry. While in the short-term, the valuation demanded by the government and discount provided to retail investors will define the success and performance of the offer,” aid Vinod Nair, Head of Research at Geojit Financial Services.
“We can presume a high demand or vice versa depending on the valuation demanded by the government on LIC’s Embedded Value is at discount or premium to the insurance industry average,” he added.
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