LIC IPO Dates Announced. But is the Timing Right?

Last week, the government filed fresh draft red herring prospectus (DRHP) with markets regulator for the much awaited IPO of Life Insurance Corp (LIC).

Yesterday, the regulator approved the same.

Now, it's time for other companies which planned their IPOs in early May to move over as the mother of all IPOs is finally here.

The dates for what's touted to be India's biggest issue are out. The initial public offering (IPO) of India's largest insurer LIC will open next week on Wednesday, 4 May and close on 9 May.

While more details such as price band, size, etc. are awaited, the interest for the IPO is definitely rising.

And we must say, the interest is huge. The government already missed the fiscal 2022 deadline for the IPO and divestment target along with it.

Board meeting today

LIC's board is reportedly meeting today to finalise issue details such as price band, issue size, and more for the mega IPO.

Apart from the price band and size, the board will also approve the exact reservation portion for policyholders and its employees.

Rumors are the price band will be set around Rs 950 to Rs 960, after taking into consideration the issue size and number of shares on offer.

The government of India has proposed to offer 3.5% shareholding through offer for sale (OFS), down from 5% decided earlier. It will offer 221.4 m shares and mop up around Rs 210 bn.

Even after the reduced size, the IPO is going to be the biggest in India. Till date, Paytm's IPO is the biggest one at Rs 183 bn in 2021, followed by Coal India at Rs 155 bn in 2010 and Reliance Power at Rs 117 bn in 2008.

Why did the government decide to reduce stake sale from 5% to 3.5%?

The size reduction comes as share markets in India have been volatile due to the Russia-Ukraine war and inflation concerns. Benchmarks BSE Sensex and NSE Nifty are seeing volatile moves in the past few weeks.

In February, it was planned the government will sell 5% stake or 316 m shares.

The Russia-Ukraine war is not the only concern which remains. Markets across the globe have turned nervous as the US Federal Reserve has turned hawkish.

Along with US Fed, the RBI has also turned hawkish, making it tough for HNIs to finance IPOs. The new RBI regulation on IPO financing has tightened the overall environment for HNIs.

Also, foreign investors (FIIs) continue to withdraw money from Indian share markets.

Not the perfect timing, but what can government do...

It appears that the timing is just not right. But the government can't keep on missing deadlines every now and then. Keeping in mind the 12 May deadline, the government has come out with the IPO.

What's the 12 May deadline you ask?

Since LIC's IPO will attract investors from multiple jurisdictions including the US, it must follow the regulatory requirement of ensuring its last filed audited numbers are not older than 135 days.

LIC last filed audited financials for the six months ended September 2021. It will file updated audited numbers for the December quarter at the time of the red herring prospectus. Thus it will meet the 135-days criteria.

If the government misses the 12 May deadline, it will have to provide audited financials for the fourth quarter including the updated embedded value.

A long process will need to be followed once again. It would also require a fresh round of marketing and roadshows.

So now you know why the government is keen to meeting the 12 May deadline.

Adding to concerns...

Note that the recent volatility in stock markets has made investors nervous. Their perspective towards the life insurance sector has dampened. Listed companies, especially private life insurers have seen a sharp decline in their share prices.

The largest listed life insurance companies, ICICI Prudential Life and HDFC Life both are down around 25% from their recent peaks.

Market experts think this will have an impact on LIC's IPO as valuations of life insurance companies continue to hit.

Will the LIC IPO receive huge interest?

We don't know the answer to this question. But the interest vested by anchor investors definitely suggests retail investors may follow suit.

According to sources familiar with the development, there's huge demand for LIC shares from anchor investors ahead of the IPO.

Anchor investors have committed around Rs 130 bn, which is more than twice the value of shares reserved for anchor investors.

If you wish to invest in IPOs, dear reader, be very clear about your strategy and expectations. It's important to remember, like the stock market, IPOs too come with risks.

Due diligence is essential before investing in them. In the long run, a knowledgeable and well-informed investor always wins.

To make things easier for you, Co-head of Research at Equitymaster Tanushree Banerjee recorded a video earlier this year, explaining how you should evaluate the LIC IPO.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...