LIC IPO: Market volatility may affect the valuation of the LIC IPO

Mumbai: The government may have to lower its valuation expectations on Life Insurance Corp of India’s (LIC) initial public offering (IPO) which is likely to launch in about two weeks after a reduction in the overall size of the offering said the people. with knowledge of the matter. The recent drop in the share price of private sector life insurers would weigh on India’s largest insurance company, they said.

The bankers plan to open the issue on May 4 and end it on May 9, the people quoted above said. Despite the depressed valuation, LIC still looms as India’s largest IPO handily, beating Paytm’s Rs 18.3bn last year, they added. LIC could not be immediately reached for comment.

“The final red herring prospectus is due any day and a market campaign for retail investors will be held next week,” a person familiar with the plans said. “We are aware of the challenges in valuations, but we expect this to be offset by higher demand due to potential post-listing gains. That will help get the issue resolved.”

Over the weekend, LIC’s board approved a cut in the equity dilution in the offering to 3.5% from the previously planned 5%. Expectations are that the company is likely to be valued at ₹6 lakh crore.


‘Room for post-listing earnings’

A 3.5% dilution will mean an offering size of Rs 21,000 crore, down from previous estimates of the issue size at Rs 60,000-63,000 crore in an initial public offering that values ​​the company at ₹13 lakh crore, ET reported on Sunday. LIC will have to seek permission from the Securities and Exchange Board of India (Sebi) for any reduction in stake dilution. The launch of the issue at the beginning of May will allow the company to go ahead without updating the financial figures again.

“We have put the December 2021 numbers in the draft prospectus that are valid until May 12,” one of the people quoted above said. “If all goes according to plan, we won’t need to upgrade because the upgrade will require at least another couple of months, which may not be ideal due to market volatility, geopolitical tensions, rising inflation, and general weakness in investors. Therefore, we have preferred to go ahead with lower dilution now rather than wait for a more opportune time.”

Analysts said that the market situation has changed in recent months and has affected the valuations of life insurance companies that will also be taken advantage of by investors looking to invest in LIC.

“In general, the market has lowered the valuation of discretionary spending and insurance companies have also been affected,” said Manish Ostwal, an analyst at Nirmal Bang Securities. “LIC will also have to deal with the discount that investors attribute to public sector companies due to government intermediation. All of these factors will affect LIC’s valuation.”

Market volatility has hit the two big publicly traded life insurance companies. ICICI Prudential Life and HDFC Life are trading recent spikes. ICICI Pru is down 25% to ₹533 from ₹664 in November, while HDFC Life is down 23% to ₹554 from ₹720 in November.

Bankers have lined up global and local pension funds, sovereign wealth funds and foreign institutional investors as anchor investors who will lay the groundwork for the issue.

“We have a wide variety of investors who are diverse,” said one of the people quoted above. “But more importantly, a smaller issue gives investors enough room to make post-listing profits, which should help demand for the issue.”

LIC has updated its draft red herring prospectus three times since it was filed in February. Ten investment banks (SBI Capital Markets, ICICI Securities, Kotak Mahindra Capital, Axis Capital, JM Financial, Nomura Securities, Bank of America, JP Morgan, Goldman Sachs, and Citibank) are the problem bankers.

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