Market slide casts cloud over LIC IPO; govt insists ‘issue on track’


By Prasanta Sahu & Malini Bhupta

Russia’s invasion of Ukraine and the market mayhem that followed have raised fresh concerns over the mega initial public offering (IPO) of Life Insurance Corporation.

A senior government official, however, told FE on Thursday that the issue would hit the market in March as scheduled, since the “life insurance business is largely insulated from commodity markets turmoil”. On Wednesday, finance minister Nirmala Sitharaman, too, had said the government was going ahead with the IPO plan, but added, “we are equally worried if the market situation is conducive”.

Analysts feel if the volatility in the stock markets persists in the coming weeks, it could force a rethink on the timing of the IPO. The likelihood of foreign investors staying away from emerging markets in the event of prolonged conflict in Eastern Europe could also be a dampener.

If the state’s run insurer’s IPO is deferred to next fiscal year, the Centre’s non-debt capital receipts in FY22 could be substantially lower than estimated in the recent Union Budget. The Budget had factored in Rs 60,000 crore from the IPO, senior officials had said earlier. However, if other Budget numbers hold true, the total revenue estimated in the Budget for the current fiscal may still prove to be close to the revised estimate. This is because the Centre’s tax revenue – net of mandatory transfers to states – could exceed the relevant RE by up to Rs 80,000 crore.

“The current market condition is a problem, but not a catastrophe,” the official quoted above said, adding that investors will back the IPO given a huge long-term potential for the growth of life insurance business in India. LIC has a 64% market share in India’s life insurance business.

On February 13, LIC filed the draft red herring prospectus (DRHP) in which the government offered to sell a 5% stake in the insurer that could fetch it Rs 70,000-80,000 crore (if it is valued at three times of the declared embedded value of Rs 5.4 lakh crore).

Market experts say that raising money from global investors at this time may not be easy, given that there are multiple headwinds. While rising interest rates have already driven money out of emerging markets, the latest crisis could make it very hard to raise money from foreign portfolio investors (FPIs). Some experts FE spoke to said that the government could consider launching the issue at lower valuation so that there’s enough upside in this for retail investors.

“The crisis could not have come at a worse time for India given the government’s divestment agenda and the LIC IPO. I would expect the government to pull out all stops to make it happen despite the headwinds,” said market veteran Shankar Sharma.

The government expects FPIs to be important participants in the LIC IPO as anchor investors, said Pranav Haldea, MD of Prime Database.

The government is trying to rope in sovereign wealth funds such as Abu Dhabi Investment Authority, Temasek Holdings and Qatar Investment Authority as well as large pension funds such as the Canada Pension Plan Investment Board and CDPQ (Caisse de dépôt et placement du Québec) to invest in the IPO.

“The government would prefer to defer the IPO to the next financial year rather than launch it at a significantly lower valuation,” added Haldea.