Fairfax-backed ICICI Lombard’s IPO covered 27% on day 1

By TEAM VCC

  • 15 Sep 2017
Credit: Shah Junaid/VCCircle

The initial public offering (IPO) of ICICI Lombard General Insurance Co., India’s largest private sector non-life insurer, crossed the one-fourth mark on the first day of its offering on Friday led by institutional investors.

The offering of 61.67 million shares—excluding the anchor allotment—received bids for 16.67 million shares, or 27% of the total, stock exchange data showed.

The quota of shares reserved for qualified institutional buyers was covered a little over 62%. The retail portion, in which bids cannot exceed Rs 2 lakh, was covered nearly 19% of the 28.6 million shares on offer.

The portion set aside for non-institutional investors, comprising corporate bodies and wealthy individuals, was covered about 3.5%, the data showed.

High net-worth individuals (HNIs), or wealthy investors, typically bid on the final day of a public offering to keep their IPO financing costs at a bare minimum. In IPO financing, HNIs borrow short-term capital from various avenues, barring banks, to fund their IPO applications. HNIs deploy a small fraction of their own capital—which is called margin money—upfront. Additional capital raised through short-tenure loans help HNIs place large bids in an IPO.

Earlier, on Thursday, ICICI Lombard raised Rs 1,625 crore ($253 million) from anchor investors including the sovereign wealth funds of Kuwait and Abu Dhabi ahead of its initial public offering.

The company sold 24.58 million shares at Rs 661 apiece to Kuwait Investment Authority, Abu Dhabi Investment Authority, a bunch of mutual funds, insurance companies and asset managers.

Funds managed by BlackRock, Goldman Sachs, Nomura, ABN Amro and Citigroup were among the international anchor investors, according to a stock-exchange filing late on Thursday.

SBI Life Insurance Company Ltd, HDFC Standard Life Insurance Co., Birla Sun Life Insurance Company and Kotak Mahindra Old Mutual Life Insurance Company also invested. SBI Mutual Funds, Kotak Mutual Fund and Franklin Templeton Mutual Fund were among the host of mutual funds who bought the shares.

ICICI Lombard is a joint venture of ICICI Bank and Canadian billionaire Prem Watsa-led investment firm Fairfax Financial Holdings Ltd. The IPO comprises an offer for sale of 86.24 million shares by ICICI Bank and Fairfax. The offering will result in a 19% stake dilution.

Fairfax has proposed to sell 54.48 million shares through the IPO. It currently owns 99.46 million shares, or a 21.92% stake, in the insurance firm. ICICI Bank will sell the remaining 31.76 million shares. This will bring its stake to nearly 56% from 62.95% currently.

The general insurer has appointed Bank of America Merrill Lynch, ICICI Securities Ltd and IIFL Holdings Ltd as lead merchant bankers. It has also appointed CLSA India Pvt. Ltd, Edelweiss Financial Services Ltd and JM Financial Institutional Securities Ltd.

ICICI Lombard was set up in 2001, after the Indian insurance industry opened up to private players. It is the largest private sector non-life insurer in India based on gross direct premium income.

The capital market regulator issued final observations on ICICI Lombard's IPO plan on 1 September. The company had filed its draft proposal with the regulator on 14 July.

Fairfax is selling the stake because it has decided to start a new general insurance joint venture in India and needs to trim its holding in ICICI Lombard to below 10% as per regulatory requirements. Indian regulations do not allow foreign investors to own a higher stake in two insurance companies. A foreign investor can own up to 49% of an Indian insurer.