LIC IPO: The federal government’s golden goose


New Delhi, First Printed Could 1, 2022, 1:16 PM IST

The Authorities of India is the only real proprietor of the Life Insurance coverage Company of India, the nation’s largest insurer having fun with two-thirds of the market even twenty years after the entry of personal sector gamers. 

The federal government has been eager to promote part of its possession via an Preliminary Public Providing for which it needed to set a valuation. As per the formulation that may have been urged by service provider bankers and different lead advisors, the LIC was valued between Rs 12-13 lakh crore earlier than the Ukraine-Russia struggle and protracted outflows by the overseas institutional buyers from the rising markets. 

Additionally Learn: LIC fixes worth band for IPO with a reduction for workers, policyholders

Having dedicated to disinvest part of its fairness or possession stake in LIC, 5 per cent at one stage at a complete enterprise valuation of Rs 12-13 lakh crore, the federal government was caught in a tough scenario with a excessive degree of volatility available in the market. However it stayed on with course corrections.  

So, in its knowledge, the federal government determined to cut back the dimensions of the fairness dilution from over 5 per cent to three.5 per cent. It slashed the enterprise valuation of LIC by virtually half to one thing like Rs 6 lakh crore with the end result that the general public is being supplied the LIC shares at half the value, which is within the band of Rs 902-949 apiece with an additional low cost to workers and policyholders. 

You would possibly ask why the proprietor (authorities) of an enterprise (LIC) ought to scale back the sale worth by half? What’s the desperation? Nicely, it’s a goose that lays golden eggs; why not present persistence? 

Additionally Learn: LIC IPO: You want a Demat account to take part; this is find out how to open it

The query is truthful, however we have to perceive that the true discovery of an enterprise is finished by the inventory market after its shares are listed and traded within the NSE or BSE. The error most IPO issuers make is to peg aggressive valuation of their enterprise, leaving not a lot on the plate for buyers. 

Quite the opposite, in a number of of the latest IPOs, the shares are buying and selling at a a lot decrease valuation than the supply worth leaving the buyers upset with a way of being short-changed. 

A number of of the brand new economic system and digital fintech corporations not too long ago elevating cash available in the market fall on this class. The truth is, in one of many much-touted IPOs of a cost fintech, buyers have misplaced greater than 75 per cent of their funding. The greed was bought via aggressive advertising and ill-advising intermediaries.

In a manner, it proved to be a blessing in disguise for the federal government and the LIC that it couldn’t launch the IPO in the course of the heady days of the market. In that case, the aggressive valuation would have melted in market volatility leaving retail buyers trapped. That will not have been a optimistic ‘first impression’ for LIC amongst buyers.

It’s the different manner spherical now. The markets have corrected considerably and the valuation of Rs 5-6 lakh crore for LIC, translating into Rs 902-949 per share, is being thought of ‘truthful’ by most analysts. Even when the LIC share doesn’t checklist with an enormous bang, it could steadily scale up because the company adjusts to the brand new world of a public listed firm. 

A gentle return to the buyers would then create loads of confidence and belief, crucial part of an insurer. To be truthful, the LIC enjoys the general public belief essentially the most on the subject of the security of funding regardless of intense competitors. Sovereign possession has its personal belief premium, particularly within the insurance coverage business.  

Analysts, although, level in direction of the LIC lagging behind the non-public gamers by way of profitability and product combine technique. That is an space the LIC administration agrees that it’s dedicated to fixing among the enterprise metrics. 

The LIC administration additionally argues that whereas the expansion fee of personal gamers could look spectacular, their base is kind of small. With a base of belongings beneath administration (AUM) of Rs 37 trillion, the growth fee can’t be that scorching.  

Whether or not it’s due to market situations or in any other case, the federal government has been offloading a minor stake of three.5 per cent anticipating to rake in Rs 21,000 crore. Who is aware of, the market could grant an enormous belief premium to the LIC. If managed properly, the insurance coverage behemoth is usually a goose which might lay golden eggs for the federal government for lengthy. 

The writer is a New Delhi-based journalist and professional on political-economic affairs.

Final Up to date Could 1, 2022, 1:16 PM IST

Supply hyperlink