There is a little over a fortnight left before the regulatory approvals for the initial public issue of Life Insurance Corporation of India (LIC) have to be renewed. With markets still in the lurch, due to various reasons, there are reports of a revised draft red herring prospectus (DRHP) and a reduction in issue size. The drastic measures follow the dwindling interest in IPOs on account of severe market volatility.
LIC had filed the first DRHP with markets regulator Securities and Exchange Board of India (SEBI) on February 13, followed by a corrigendum on February 16 to include financial results for the December quarter. The markets watchdog had given its approval to the draft IPO papers on March 8, making it one of the fastest DRHPs to be processed.
Recent media reports suggest that LIC has filed a revised DRHP before the regulator. Notably, SEBI’s approval for the earlier DRHP for the insurer’s IPO expires on May 12, following which it will have to submit the draft papers again for approval. Fresh IPO papers will have to be updated with the March quarter numbers and the latest embedded value.
These reports come close on the heels of claims that the Centre has reduced the IPO size to 3.5% from the earlier proposed 5%. Under this revised arrangement, the government is looking to raise ₹21,000 crore from the sale of around 22 crore shares.
This would bring LIC’s valuation to ₹6 lakh crore, close to market giants like Reliance Industries or Tata Consultancy Services (TCS). This valuation is 1.1 times LIC’s embedded value of ₹5.4 lakh crore.
The IPO is also likely to have a ₹9,000 crore greenshoe option too, which might be exercised in the event of an over allotment. The government can retain the excess subscription and adjust the public issue as per demand and market conditions. The price band, issue date, reservations and discounts are rumoured to be announced later this week, whereas the issue is expected to open in the first week of May.
However, LIC is yet to confirm a revised DRHP and reduction in IPO size. Even with the reduced issue size of ₹21,000 crore, LIC will be the largest IPO in the country, outdoing Coal India’s ₹15,500 crore IPO in 2010 and Reliance Power’s ₹11,700 crore IPO in 2008.
The government had assured the LIC IPO will be floated in May first week, but the dwindling demand for initial public issues might play spoilsport. After an IPO gold rush last year, there are 45 issues worth ₹1.3 lakh crore stuck due to the economic difficulties arising out of the Russia-Ukraine war. Rising inflation, spiralling commodity prices, paradigm shift in monetary policies of advanced nations, and massive disruption in supply-chain have spooked investors, making companies apprehensive of launching an IPO during these times.
The LIC IPO will be crucial to the central government’s ambitious disinvestment plans. The government has revised the disinvestment target for the current fiscal to ₹65,000 crore, after raking in only ₹13,531 crore in the last fiscal.
