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One of Asia’s life insurance giants, Life Insurance Corporation of India (LIC) is coming out with its Initial Public Offering (IPO) by the next year. For India’s largest-ever public offering, the government is considering a proposal for allowing a foreign institutional investment stake of as much as 20% instead of 10%, in order to attract overseas investors. This would enable foreign pension funds, insurance companies and mutual funds to participate in the listing in India, expected to be around March 2022.
While FDI of as much as 74% is permitted in most Indian insurance companies, LIC and other public sector insurance companies come under their own statutes. The rules don’t apply to LIC as the government-owned insurance company is a special entity, which is created by an act of parliament. Moreover, foreign investors are required to seek permission from the Insurance Regulatory and Development Authority of India (IRDAI), if they want to pick a greater than 5% stake in an insurance company.
But if the rules are amended, then investors can pick up the stake without the government’s approval. Not just would it allow global funds to participate in the IPO, but also open doors for investors to purchase a significant stake after the listing in the secondary market.
India’s biggest IPO ever in 2022
Many analysts expect the government aims to raise up in excess of $135 bn, through selling 5% to 10% of LIC this financial year which ends in March.
Bloomberg said the sale of even a 5% stake would make it India’s biggest-ever IPO and a 10% stake would make LIC offering to be the second-biggest IPO ever in the global insurance industry. Analysts at Jefferies expect the valuation to be as high as $253 bn. Fundraising through IPO pre-sales is expected to go up in October to November period.
According to a study by London-based Brand Finance Insurance 100 2021, LIC has emerged as the third strongest and tenth most valuable insurance brand globally. As per the report released in April, LIC’s brand value increased by almost 7% to $8.65 bn, even as the total value of the world’s top 100 most valuable insurance brands declined by 6%.
The issue size is so massive, that some media reports suggest the IPO of the country’s largest life insurer, could be split into two consecutive offerings with a gap of a few months. Reportedly, LIC, post the IPO, could become the third-most valuable listed company in India, after Reliance Industries (RIL) and Tata Consultancy Services (TCS).
Bringing the much-needed disinvestment proceeds to the government, the LIC IPO can be a big value unlocking event for the government and a large source of capital for funding future initiatives. It can be used to narrow India’s budget deficit, forecasted to be 6.8% this year.
Why LIC IPO matters for investors
Founded in 1956, it is one of the oldest and most trusted insurance companies in the country. The “granddaddy of insurance” controls two-thirds of the Indian market with almost 300 million policies. Its asset under management (AUM) of $511 bn is equivalent to the total size of India’s mutual fund industry.
It is based out of Mumbai and spreads across its 2,000 branches all over the nation. LIC enjoys a sovereign guarantee of its policies, that allows the insurance company to operate with a thinner capital base than its peers. Apart from being the government’s biggest financial backer, LIC is also the largest investor in its markets, managing assets worth $454 bn.
The insurance leader releases its balance sheet only once a year. In April, the state-owned leviathan reported a record $4bn profit from share sales in 2020-21, the highest in its 65-year history and up 44.4% from the fiscal 2020 profit.
The Indian government continues to regularly modify regulations to encourage IPO in India’s equity market. 2021 is one of the best years for IPOs investments in India, with as many as 40 companies already floating their primary sale this year.
According to data compiled by Bloomberg, Indian companies have raised about $10.8 bn through IPOs in the country so far this year, putting the year on track to beat the all-time record of $11.8 bn, registered in 2017. In the next six months, KPMG expects digital companies in India to raise about $10 bn via listings in the primary market.
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