Share sale to boost LIC value in long run: DIPAM Secretary

Mumbai: Life Insurance Corp of India (LIC) formally began marketing the country’s largest share sale that’s set to draw top global investors and bolster the government’s asset-monetisation programme. After lowering the expected valuation and reducing the size of the offering, the government expects the May 4-9 initial public offer (IPO) to be a success as it will leave money on the table for investors and provides for a listing bump.

The share sale is part of the government’s long-term strategic vision and will enhance the value of LIC in the long run, said Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management (DIPAM), the nodal body for divestment.

“The current IPO is the first step of long-time value creation for LIC shareholders,” he said at a press conference on Wednesday. “This issue is right-sized considering the capital market environment and will not crowd out capital and monetary supply given the current environmental constraints. The optimal size should provide strong demand and after-market performance.”

The IPO, which was first expected to be completed in March, was delayed due to adverse market conditions following Russia’s invasion of Ukraine.

Sebi Exemptions

Both the size and valuation of the issue have been lowered – the government is diluting 3.5% of its stake against the 5% planned earlier. The price band has been fixed at ₹902 to ₹949 per share, valuing the company at about ₹6 lakh crore, down from ₹13 lakh crore seen in March.
Pandey, however, said that valuation will depend on how the market and investors price the shares when LIC is publicly listed and it’s not correct to say that this is lower than planned.

“Valuations are all guesstimates by comparing with listed players like SBI Life or HDFC Life, or you can even compare with foreign companies like China Life or AIA. Ultimately, it is the market that will price it,” he said.

To be sure, at ₹949 per share, LIC will raise ₹21,000 crore, which still makes it the biggest IPO in India, beating the ₹18,300 crore raised by Paytm last year. LIC has got special permission from Sebi for reduction in the dilution of stake as current rules stipulate that a minimum 5% dilution is necessary for companies valued at more than ₹1 lakh crore.

Pandey said the decision to list at the current juncture was taken looking at “the market demand which includes solid anchor book, stabilising market condition, reducing volatility, domestic flows and the corporation’s financial performance.”

The government is expecting retail investors to bid aggressively to take advantage of a ₹45 per share discount. There’s a higher ₹60 per share discount for policyholders. The minimum amount of shares that can be bid for is 15.