Ukraine crisis: Govt may defer LIC IPO

With the Russia-Ukraine war roiling financial markets globally, the government may defer the mega IPO of LIC and wait for an opportune time to get the maximum value of its holding in the state-owned insurance behemoth, sources said.

“It’s a full blown war now so we will have to assess the situation for going ahead with the LIC IPO,” a government source said. Finance Minister Nirmala Sitharaman too had indicated review of the IPO in view of the evolving geopolitical situation. “Ideally, I would like to go ahead with it because we had planned it for some time based purely on Indian considerations,” Sitharaman had said in an interview with the Hindu Business Line. “But if global considerations warrant that I need to look at it, I would not mind looking at it again.”

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The IPO was expected to hit the market this month. The Russia-Ukraine war entered its seventh day on Wednesday, with fighting intensifying in Ukrainian capital Kyiv and other big cities. The government was expecting to garner Rs 63,000 crore by selling 5 per cent stake in the life insurance firm to meet the curtailed disinvestment target of Rs 78,000 crore in the current fiscal.

If the initial public offering (IPO) is deferred to the next fiscal, the government would miss the revised disinvestment target by a huge margin. So far, the government has raised Rs 12,030 crore through CPSE disinvestment and Air India’s strategic sale this fiscal. The government had earlier projected to garner Rs 1.75 lakh from disinvestment during 2021-22. The IPO is offer for sale (OFS) by the Government of India and there is no fresh issue of shares by LIC. The government holds 100 per cent stake or over 632.49 crore shares in LIC. The face value of shares is Rs 10 apiece.

The LIC public issue would be the biggest IPO in the history of Indian stock market. Once listed, LIC’s market valuation would be comparable to top companies like RIL and TCS. So far, the amount mobilised from IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore. Last week, the government had permitted up to 20 per cent foreign direct investment (FDI) under automatic route in IPO-bound LIC with an aim to facilitate disinvestment of the country’s largest insurer.

The decision in this regard was taken by the Union Cabinet, chaired by Prime Minister Narendra Modi. Foreign investors may be desirous of participating in the mega IPO. However, the existing FDI policy did not prescribe any specific provision for foreign investment in LIC, which is a statutory corporation established under the LIC Act, 1956. Since as per the present FDI policy, the foreign inflows ceiling for public sector banks is 20 per cent under government approval route, it has been decided to allow foreign investment of up to 20 per cent for LIC and such other corporate bodies.

Further, in order to expedite the capital raising process, such FDI has been kept under the automatic route, as in the case of the rest of the insurance sector, a source said. Setting the stage for the country’s biggest-ever public offering, LIC on February 13 filed draft papers with capital market regulator Sebi. The IPO of over 31.6 crore shares or 5 per cent government stake was likely to hit D-street in March. Employees and policyholders of the insurance behemoth would get a discount over the floor price.

According to the draft red herring prospectus (DRHP), LIC’s embedded value, which is a measure of the consolidated shareholders value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors. Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around Rs 16 lakh crore.