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India’s Biggest-Ever IPO, LIC, Will Test Foreign Investors’ Appetite

The LIC logo hovers above a few passers-by in Mumbai, India last week. The IPO of the nation’s largest life insurance payer is expected to raise $2.7 billion in the nation’s largest IPO yet.

Punish Paranjpe | AFP | Getty Images

The dominant player in the Indian life insurance market, Life Insurance Corporation, opens its initial public offering for subscription on Wednesday in the largest IPO ever in the country.

The government is selling a 3.5% stake in state-owned insurance giant LIC for an estimated $2.74 billion. The company will offer about 22.13 million shares for between 902 and 949 Indian rupees, equivalent to $11.78 to $12.39 per share at Tuesday’s exchange rate.

Trusted by millions and with huge reach across the country, LIC is the second largest savings haven in India after bank deposits. Between 2019 and 2021, the share of LICs in household financial savings increased 3.4 percentage points to 19.4%. That’s ahead of the 16.7% share of pension funds, while bank deposits fell 7.1 percentage points to 29.4% over the same period.

LIC had a monopoly in the Indian insurance market until 2000 and remains the dominant player, controlling around two-thirds of the life insurance market. In the fiscal year ending March 2021, LIC’s market share was 64.14%, down slightly from 66.22% in the previous year.

IPO timeline

The IPO, originally scheduled for February, was postponed due to the war in Ukraine and the outflow of institutional funds from the stock market. Since January, approximately $16 billion in foreign capital left the Indian markets. The size of the LIC supply, initially set at 5%, was reduced to 3.5%.

There is no perfect time for an IPO. Given the high liquidity of international markets, this is the most favorable time.

Arvind Virmani

Former Chief Economic Advisor to the Government of India

The company’s current implied valuation of $80 billion is about half of what it was in February, down at least in part due to market conditions. He had previously planned to offer a 5% stake for around $8 billion.

Speaking to CNBC, former Indian government chief economic adviser Arvind Virmani dismissed claims that the IPO was poorly timed.

“There is no perfect time for an IPO. Given the high liquidity in international markets, now is the best time, he said.

Foreign investors

Among the actions offered, 20% are open to foreign investors and 10% are reserved for policyholders.

LIC, which has an estimated base of 250 million insured, is an asset-rich organization. Since March 2021, LICs the asset base had exceeded $520 billionwith investments of 503 billion dollars and a life fund of 470.70 billion dollars.

The complexity and scale of LIC’s IPO signals the government’s intention to go further than previous governments.

Suyash Rai

Deputy Director and Partner, Carnegie India

Speaking to CNBC, Carnegie India Deputy Director Suyash Rai said LIC’s IPO gives domestic and foreign investors the opportunity to invest in a company that controls about two-thirds of the market in India. life insurance in India. He said that although the listing is a “continuation of a decades-old policy of listing public sector financial companies”, LIC still stands out.

“The complexity and scale of LIC’s IPO signals the government’s intention to go further than previous governments,” Rai said.

As proof of its commitment to reforming the financial sector, the government noted last year foreign participation in insurance at 74% against 49%.

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