What happens if the LIC IPO is deferred to next year?
As of now, the final word from the government is still awaited on the LIC IPO. They were supposed to announce the actual LIC IPO details last week, but that has already passed and hopefully the details should be divulged in the current week. However, the IPO is looking increasingly unlikely in the current year for a variety of reasons.
Here are some of the major reasons, why the LIC IPO would be postponed to next fiscal year FY23
1) The government would be heavily counting on the foreign portfolio investors (FPIs) to see the LIC IPO through. With FPIs having sold more than Rs.2 trillion in the last 5 months, the scenario is hardly conducive for a mega IPO.
2) The stakes are too high and the margin for error is too small. The LIC IPO is expected to be nearly 3.5 times the size of the Paytm IPO, the largest till date. The government just cannot afford the issue failing or heavy undersubscription, so stakes are too high.
3) Time may be of essence. Even if the government takes a risk and announces the IPO opening by the third week, it would be tough for them to complete the IPO and realize the proceeds this year. Anyways, the core purpose would be defeated.
4) The valuation that the government is seeking for LIC makes it the second most valuable life insurance company in the world. An issue of that size and at such robust valuations may be a tough ask when the index is already 16% below its recent peaks.
5) The IPO market has been in a state of quiescence and most retail investors and HNIs must be sitting on huge losses at this point of time. The appetite for a large IPO at this juncture may not be too smart, even from the non-institutional investors.
6) Of course, needless to say, the Ukraine situation is a big overhang. Global markets are already risk-off now; which means they are negative on emerging markets and positive on safe havens like the US dollar, Euro, gold etc. That is not a great time for an IPO.
7) Finally, SEBI approval is yet to come for LIC IPO and the government is also planning a pre-IPO placement and good anchor demand. That needs a lot more of time and planning bandwidth, which may be tough in the limited time available.
What happens if the LIC IPO gets postponed?
Actually not much. At the end of the day revenue accounting is a matter of positioning your flows in the current year or in the next year. These are not normal times and abnormal times call for abnormal solutions. In normal times, the postponement of an IPO would be looked at as a sign of diffidence. In the current scenario, putting off the IPO looks more like a rational decision at this juncture.
What about disinvestment revenues. Yes, the problem is India had originally set a target of Rs.175,000 crore for FY22 from divestment and later scaled it down to Rs.75,000 crore. If the LIC IPO gets postponed to the next fiscal year, India may end up with disinvestment revenues of just about Rs.12,500 crore. That looks paltry against the lofty targets, but that is more academic in nature. The need of the hour is, anyways, to put off the LIC IPO to FY23.