LIC IPO investment: LIC IPO: why FIIs are unimpressed with India’s Aramco momentum

Foreign institutional investors have generally steered clear of India’s biggest share sale, seeing it as too costly given currency risks and the global market backdrop.

With just hours to go until the end of Life Insurance Corporation of India’s $2.7 billion initial public offering subscription period, foreign institutional funds have placed orders for just 2% of the shares reserved for all institutional buyers. .

While the main portion of the IPO attracted sovereign wealth funds from Norway and Singapore, most of the shares went to domestic mutual funds.

“Foreign institutional investors have strongly withdrawn from the secondary market since October. The Fed’s rate hike and the recent slide in the rupee against the dollar further increase risks of currency depreciation that may erode asset price gains in India,” said Vidya Bala, head of research and co-founder of Primeinvestor.in, based in Chennai.

“So there is little reason for them to participate in an initial public offering, no matter how big it is.”

Bloomberg

Dubbed India’s “Aramco moment” in reference to Gulf oil giant Saudi Arabian Oil Co.’s $29.4 billion listing in 2019, the world’s largest, LIC’s float ended up looking like Aramco’s IPO did not. not only in scale but in its reliance on domestic investors after foreign buyers found floating too expensive.

LIC has been trying to drum up interest with newspaper ads since the beginning of the year, looking to tap into India’s retail investment boom.

India’s government had cut IPO fundraising by about 60% as the war in Ukraine hit markets, denting risk appetite, while rising US interest rates. The US is steering foreign investors away from emerging market stocks. It also cut the valuation it is seeking for the country’s oldest insurer, which would be worth 6 trillion rupees ($78 billion) at the top of the price range.

The locals huddle
While foreign investors have balked at the deal, retail buyers have been piling in. Policyholders bid for five times the shares reserved for them, while the employee side received orders for almost four times the amount available, stock exchange data showed. Retail investors and policyholders receive discounts on the offer price.

Overall, the initial public offering has received orders for 1.79 times the shares on offer, while about a third of the tranche for qualified institutional buyers remains unsold.

The low interest from international investors contrasts sharply with some of the Indian IPOs last year. One97 Communications Ltd., which operates digital payments firm Paytm, lured BlackRock Inc., the Canada Pension Plan Investment Board and the Teacher Retirement System of Texas, among many others, for its 183 billion rupees share sale last year. . Food delivery platform Zomato Ltd. was similarly popular with foreign investors.

Those buyers, however, have been left at a loss as enthusiasm for India’s tech boom faded after a few flops. Paytm sank 27% on its debut and is now trading 74% below its asking price. Zomato had a strong debut last summer, but has since lost 20% in value.

Investors have also expressed concern about LIC’s ability to maintain its market share as private insurers such as HDFC Life Insurance Co. Ltd. and SBI Life Insurance Co. Ltd. expand. The private sector has been on a wave of Aggressive expansion during pandemic, raising new individual policy premiums as LIC struggles.

“Foreign institutional investors have generally never been big on state-owned companies as it is very difficult to make money from them,” said Abhay Agarwal, fund manager Piper Serica Advisors Ltd. “For LIC, the government was also unable to communicate convincing way to global investors that the insurer will put the interest of shareholders first and will not function simply as a government entity.”

Add Comment