LIC IPO is a classic case of a slip between cup and lip; Russia-Ukraine Conflict turns out to be biggest spoiler

LIC IPO amidst Russia Ukraine War crisis

The crisis has led to a turmoil in equity markets globally, including India; this has forced
government to review its planned launch, pushing it to next financial year

The much awaited public issue of Life Insurance Corporation of India (IPO) has been pushed back,
thanks to the Russia-Ukraine crisis that has spoilt the stock market sentiments, globally and in India.
The Government is still mulling over the appropriate time for the launch of the Initial Public Offering
(IPO), which will be by all means, the largest IPO ever in India, till date.


Recently listed One 97 Communications Limited, which owns Paytm, is by far the biggest issue in the
country at over Rs 18,000 crore. It is followed by Coal India Limited (listed in 2010) at nearly Rs
15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

The government was initially targeting to complete the IPO before the end of this financial year. Had
this been done successfully, the state-insurer would likely have achieved India’s disinvestment target
single-handedly for this financial year. The government’s expectation from this issue is to raise
between Rs 60,000-70,000 cr. The disinvestment target of the government for the financial year 2021-
22 (April-March) is Rs 78,000 cr.

During the current financial year so far, Rs 12,423.67 crore has been garnered through offer for sale
(OFS), employee OFS, strategic disinvestment and buyback. The target for the full fiscal is Rs 78,000
crore, a media report suggests.

Had this happened, it would have been a blockbuster year with two massive disinvestments led to
their logical conclusion in the form of Air India and LIC. The government recently sold the mighty
career to the Tata Group, the original owner of ‘Maharaja’. Until it happened, it looked an
insurmountable task.

But, for the LIC, it now seems as a classic case of a slip between the cup and the lip. When it
appeared that the stage was set for the IPO, the Russia Ukraine conflict emerged, unsettling the equity
markets, the world over. The disappointment is palpable among stake holders including the retail
investors and possibly for the Government, too.

The government now is aiming to complete it in the early part of FY 2022-23. The disinvestment
target at Rs 65,000 cr for this fiscal is even more modest than the current financial year.
The issue has been live ever since the idea of listing of LIC first surfaced and even to this day news
continue to emerge. The latest that we know is that the government intends to complete it by April
end.

About LIC IPO

LIC filed its Draft Red Herring Prospectus (DRHP) in February, which was later approved by the
market regulator the Securities and Exchange Board of India (SEBI). It has recently updated the draft
papers of its IPO and incorporated December quarter financial results.
According to a media report the Life Insurance Corporation reported a net profit of Rs 235 cr in the
October-December quarter. It was just Rs 90 lakh during the corresponding quarter in the year ago
period. The net profit in April-December, 2021, increased to Rs 1,671.57 cr from Rs 7.08 crore in the
year ago period (April-December 2020).

Through this IPO, the government will be selling around 31.6 crore or 5 per cent stake in the life
insurance firm. The government has time till May 12 to launch the IPO without filing fresh papers
with the Securities and Exchange Board of India. Any timeline beyond this will require the insurance
behemoth to file fresh DRHP with the SEBI.

International actuarial firm Milliman Advisors has pegged the embedded value of LIC at about Rs 5.4
lakh crore as of September 30, 2021. LIC’s embedded value is a measure of the consolidated
shareholders’ value in the government-owned insurance company.

Though the DRHP still does not reveal the market value of LIC, people in the know estimate it at least
three times the embedded value.

While the 5 per cent stake sale is the biggest in the history of IPOs in India, the company after its
listing could be among the five largest companies in the country in terms of its market capitalisation.
Why this delay?

Unlike most part of 2020 and 2021 when the stock markets had a dream run, they remained volatile
till late February on uncertainties that prevailed over the US Federal Reserve rate hike (which was
25bps effected on 16 March), inflation worries and Covid-19. However, the Russia-Ukraine crisis has
turned out to be the biggest spoiler, leading to a bloodbath in stock markets.

The crash has forced the government to review its plans of the launch as the IPO, under current
circumstances, could prove to be a disaster. While, it could not only impact valuations of LIC, it may
have an impact on the participation from the retail investors. The Government in its wisdom took a
judicious decision to shelve it in the near term.

Mint reported how sweeping sanctions against Russia and the expulsion of several Russian banks
from financial messaging platform SWIFT could dampen foreign institutions’ participation in LIC’s
share sale.

What is at stake?

While the Air India’s divestment has already set the tone for Government’s grand divestment plans,
LIC’s IPO successful launch could potentially unleash the animal spirit over the next fiscal.

Many high profile divestments are in line over FY23 including that of Bharat Petroleum Corporation
Limited (BPCL), BEML Limited, Container Corporation of India, Pawan Hans Limited and IDBI
Bank.

To the government’s credit, it has been aggressively pursuing its targets and has been engaging with
potential investors. However, the investors could not be blamed for taking their time and weighing the
options.

The government is mindful of these challenges and treading the path cautiously, and rightly so.

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