Market volatility may affect LIC IPO valuation

Mumbai: The government may have to lower its valuation expectations in the initial public offer (IPO) of Life Insurance Corp of India (LIC) that's likely to be launched in about two weeks after a reduction in the overall size of the offer, said people with knowledge of the matter. The recent fall in the stock price of private sector life insurers would weigh on India's largest insurance company, they said.

Bankers are planning to open the issue on May 4 and end it on May 9, said the people cited above. Despite the depressed valuation, LIC is still set to be the largest IPO in India comfortably, beating Paytm's ₹18,300 crore last year, they added. LIC couldn't immediately be reached for comment.

"The final red herring prospectus will be filed anytime now and a market campaign for retail investors will happen next week," said a person familiar with the plans. "We are conscious of the challenges on valuations but we expect it to be made up by higher demand because of likely post-listing gains. That will help the issue sail through."


Over the weekend, the LIC board approved a cut in equity dilution in the offer to 3.5% from the 5% planned earlier. Expectations are that the company is likely to be valued at ₹6 lakh crore.

'Room for Post-listing Gains'
A 3.5% dilution will mean an offer size of ₹21,000 crore, down from earlier estimates of the issue size at ₹60,000-63,000 crore in an IPO valuing the company at ₹13 lakh crore, ET reported Sunday.

LIC will have to seek the permission of the Securities and Exchange Board of India (Sebi) for any reduction in the dilution of stake. Launching the issue in early May will allow the company to go ahead without updating the financial numbers again.

"We have put the December 2021 numbers in the draft prospectus which are valid till May 12," said one of the persons cited above. "If all goes to plan we will not need to update because updation will require another couple of months at least which may not be ideal due to the volatility in the market, geopolitical tensions, rising inflation and general weak investor sentiment. Hence we have preferred to go ahead with a lower dilution now rather than wait for a more opportune time."

Analysts said the market situation has changed over the past few months and it has impacted valuations of life insurance companies that will also be baked in by investors looking to invest in LIC.

"Generally, the market has lowered valuation for discretionary spending and insurance companies have also been hit," said Manish Ostwal, analyst at Nirmal Bang Securities. "LIC will also have to contend with the discount that investors ascribe to public sector companies because of the government intermediation. All these factors will impact the LIC valuation."

Market volatility has had an effect on the two large listed life insurance companies. ICICI Prudential Life and HDFC Life are both trading off recent peaks. ICICI Pru is down 25% to ₹533 from ₹664 in November while HDFC Life is down 23% to ₹554 from ₹720 in November.

Bankers have lined up global and local pension funds, sovereign wealth funds and foreign institutional investors as anchor investors that will set the base for the issue.

"We have a wide variety of investors who are diverse," said one of the persons cited above. "But more importantly, a smaller issue gives investors enough room to make post listing gains which should help demand for the issue."

LIC has updated its draft red herring prospectus thrice since it was filed in February. Ten investment banks - SBI Capital Markets, ICICI Securities, Kotak Mahindra Capital, Axis Capital, JM Financial, Nomura Securities, Bank of America, JP Morgan, Goldman Sachs and Citibank - are bankers to the issue.