Here's all you need to know about LIC’s mega IPO

Insurance giant Life Insurance Corporation (LIC) of India has filed a draft prospectus with the Securities and Exchange Board of India to float India’s largest-ever initial public offering.

The government aims to sell a 5% stake in LIC through an offer for sale as part of its divestment program.

The filing comes nearly two years after Finance Minister Nirmala Sitharaman first announced the plan to list the company in February 2020. However, the government had to defer its plan in the wake of the coronavirus pandemic.

Here’s a sketch of the proposed IPO by LIC:

What is the IPO about?

The government has proposed to sell nearly 316.25 million shares, or a 5% stake, in the proposed IPO.

How big is the issue?

Based on the September 2021 embedded value of Rs 5.4 trillion, the issue size will be at least Rs 27,000 crore.

However, embedded value is only an estimate based on several assumptions. Considering its size, and dominant position with 66% market share in new business premium, its market value may be pegged at two to three times its embedded value. 

This means an estimated valuation of Rs 10.8-16.2 trillion and, therefore, as issue size of Rs 54,000-81,000 crore.

Why is there so much hype around LIC’s IPO?

There has been a lot of chatter around LIC’s IPO given its sheer size. At an estimated Rs 54,000-81,000 crore, it will be the largest IPO in India ever. 

One97 Communications Ltd, the company behind digital payment provider Paytm, had previously floated India’s largest IPO worth Rs 18,300 crore in November 2021.

What about the proceeds from the IPO?

LIC itself will not get any money from the IPO. Instead, the capital raised will go to the government’s coffers to meet its disinvestment target.

The government had initially budgeted for collecting Rs 1.75 trillion from disinvestment during the current financial year. Of this, it had hoped to collect Rs 1 trillion, or more than half the target, by selling LIC shares. 

However, the government lowered the divestment target to Rs 78,000 crore in the budget presented on February 1. Of this, it has already raised Rs 12,030 crore so far this year.

How big will LIC really be as compared to other index heavyweights?

LIC could be the third-biggest company by market capitalization behind only Mukesh Ambani-led Reliance Industries Ltd, which is valued at Rs 15.8 trillion, and Tata Consultancy Services, which is worth about Rs 13.8 trillion. 

For perspective, LIC will be the most valuable financial institution in India and also the most valuable state-run company. Currently, HDFC Bank is India’s biggest financial institution with a market value of Rs 8.2 trillion while State Bank of India, at Rs 4.55 trillion, is the most valuable government-owned entity in terms of market capitalization. 

Who are the bankers for the IPO?

The government has picked 10 financial advisors including five domestic banks—Kotak Mahindra Capital Co, Axis Capital, SBI Capital Markets, JM Financial and ICICI Securities. The other five are foreign banks – Goldman Sachs, JP Morgan, BofA Securities, Nomura, and Citigroup Global Markets.

What benefits do LIC policyholders get?

Policyholders will be eligible to bid in the policyholder quota. The government has reserved 10% of the issue size for such holders.

When will the IPO launch?

The government is running against time as it plans to launch and conclude the IPO before the end of March to meet its disinvestment target. It remains to be seen if the government is successful enough given the market conditions.

In the last one month, the BSE’s benchmark Sensex has lost more than 7% owing to a number of global and domestic factors including the much anticipated and calibrated interest rate hikes by world’s central banks.