India’s largest initial public offering of Life Insurance Corporation (LIC) of India is to be postponed to April, according to top government officials, even as the government keeps a close watch on the volatility index (VIX) for stability in the markets so as to decide the best timing.
Three senior officials who spoke on the condition of anonymity indicated that the government had a window till 17 May to go ahead with the IPO, and investor interest will be the paramount deciding factor.
The government aims to sell 5% of its shareholding in the country’s largest insurer through an offer-for-sale (OFS), aiming to garner as much as ₹75,000 crore.
"We will try to do the LIC IPO some time next month, maybe at the end of April. We don't want to delay it much further. We have a window till May 17," an official said. He added that the government expects the sentiment led by the geopolitical tension to improve in April. "There could be some improvement in sentiment as the peak war may get settled," he said.
A second official cited above said that volatility in the stock markets due to the uncertainty caused by the Russia-Ukraine war had reduced over the past week relative to last month when global indices saw a sharp decline affecting the Indian market as well, but investor sentiment from not only institutional investors but also retail investors will have to be kept in mind before proceeding.
“We’re watching the VIX for certainty in stability, and we have to be in the green before going ahead, but the 31 March deadline is no longer sacrosanct,” he said. “The big investors have to cut the cheques, they have to be on board, but a good chunk of the IPO is for retail investors and that needs to be fully subscribed which means a large number of people will be investing into it,” he added.
The second official emphasised that since the size of the IPO will be the largest ever for the Indian stock markets, a high number of retail investors are expecting to invest and if the post listing share price faces a lot of turbulence due to the ongoing war, it may lead to retail investors getting dismayed. “We would like to avoid such a situation.”
LIC has a mammoth base of at least 28 crore policyholders and to ensure that the retail quota gets adequately subscribed in the IPO, the government has put LIC's entire workforce into action with a task of converting these policyholders into PAN holders, and linking their PAN with their fresh or existing demat accounts so that they are able to invest in LIC IPO.
"So far, at least 7 crore policyholders' PANs have been matched with their LIC policies and link them with their demat accounts. Of this, at least 4.5 crore policyholders have got fresh PAN numbers to be able to invest in the LIC IPO," said the first official cited above.
A total of 10% of LIC's shares for retail investors will be reserved for LIC policyholders and such policyholders are likely to be offered a10% discount on the floor price of LIC shares during the IPO.
A third official cited above also pointed out that the government was keen to go ahead with the IPO early next year. " We will try to do it before May," said the official.
While the Securities and Exchange Board of India has cleared the LIC share sale proposal in record 22 days after it filed the draft red herring prospectus, the government needs a minimum of 15 days to sign on anchor investors before opening up the sale for retail investors and policy holders, and delay in timing will push the IPO to next month.
A push to April will impact the government’s asset sales goal and impact the fiscal deficit target. However, as the government expects the fiscal spending to overshoot for FY23, the LIC IPO earnings may act as an additional buffer. "The buffer that we had kept in the budget for FY23 is already off as oil prices, fertilizer prices as assumed at the time of budget-making have already exceeded the expectation. While they may come down during the course of the year, the LIC IPO may act as a buffer next year," the official added.
The success of the LIC IPO is critical for the government to meet its asset sales target, which has been slashed by more than half to Rs.78,000 crore for the current fiscal.
The Union Cabinet approved foreign direct investment of up to 20% under the automatic route in LIC to facilitate foreign investment in the insurer, making inroads easier for foreign investors. The department of investment and asset management (DIPAM) has been holding roadshows with sovereign wealth funds, alternative investment funds, pension funds, mutual funds, and new investors across markets, including the US, the UK, Canada, Australia and Japan, showing interest, according to a fourth official who also spoke on condition of anonymity.
However, exclusion of several Russian banks and entities from SWIFT due to the imposed sanctions amid the ongoing invasion of Russia into Ukraine has come up as a major concern for global investors as reported by Mint last week. Mint also reported last week that Indian fund managers, especially at mutual funds, who okay a critical role in any large IPO as anchor investors, were not in favour of the government's insistence to launch the heavyweight IPO in March merely to curtail the country's fiscal deficit.
Mint had reported last month that the government is seeking a valuation of at least ₹15 trillion for LIC based on the ₹5.39 trillion embedded value worked out by actuarial firm Milliman Advisors.
