The subscription for India’s biggest initial public offer ever - of Life Insurance Corp of India - witnessed a strong start on Wednesday with policyholders and retail investors leading the subscription for the insurer’s shares. At the end of the first day of public offer, the LIC IPO was subscribed 62%.
The strong demand for the LIC share sale came on a day when the benchmark indices Sensex and Nifty fell 2.3% each after a surprising 0.4 percentage point interest rate hike by the Reserve Bank of India.
The portion of the share sale reserved for policyholders saw the most demand on the first day with the segment getting oversubscribed at 1.8 times. The retail investor portion was subscribed 55% as of the first day, while the portion reserved for institutional investors and high net worth individuals were subscribed 33% and 25%, respectively as per data from stock exchanges. A small portion of shares reserved for LIC employees was fully subscribed.
The LIC share sale closes on 9 May, running longer than other initial share sales which are open for three days. Subscription to the share sale will also be open on Saturday, 7 May.
LIC’s shares will list on the stock exchanges on 17 May.
The Indian government is offloading a 3.5% stake in the share sale for a total of Rs 21,000 crore. Earlier on Monday, LIC raised Rs 5,627 crore through allocation of shares to so -called anchor investors.
The price band for the share sale has been fixed at Rs 902-949 a piece. Retail investors and LIC employees have been offered a discount of Rs 45 per share, while policyholders have been offered a discount of Rs 60 per share.
The strong demand from policyholders and retail investors is in line with the trend witnessed in the anchor subscription, where domestic institutional investors came out in strong support of LIC.
Domestic mutual funds subscribed to 74% of the share offered in the anchor allocation, even as foreign institutional investors largely stayed away, subscribing to just 17.7% of the anchor allocation.
The mutual fund subscription was led by fund houses like State Bank of India, ICICI and HDFC. Amongst FIIs, the biggest investors included BNP Investments, Government Pension Fund Global and Government of Singapore.
While the government had initially planned to sell 5% stake in LIC, the issue size was reduced to 3.5% and the valuation was also lowered to Rs 6 trillion, keeping in mind the current market environment, where markets have been volatile on account of the Russia-Ukraine war, global inflationary concerns and rising interest rates, leading to FII outflows from emerging markets such as India.
“This is the right size considering the current capital market environment and will not crowd out capital and monetary supply, given the current environmental constraints,” Tuhin Kanta Pandey, secretary for the Department of Investment and Public Asset Management (DIPAM), said at a press conference in Mumbai last week.
“Valuation flows from optimizing positioning, devising the best marketing strategy, accessing investors in the right way and right sequence, structuring the deal appropriately and selecting the optimal market window,” he added.