IPO Update: LIC valuation down by half ahead of initial public offer

Before it is launched in the coming days, the much-anticipated Life Insurance Corporation of India (LIC) initial public offering (IPO) is undergoing various modifications and changes to gain investor confidence. Though the state-run insurer was valued at about double that amount by its owner in the Budget projection for FY22, the Centre has agreed to a far lower valuation of around 6 trillion for Life Insurance Corporation (LIC) ahead of its initial public offering (IPO).

The move is driven by a protracted trend of capital outflows from Indian and other emerging-market markets following the Russia-Ukraine crisis, as well as feedback from institutional investors who referenced how similar firms were valued globally.

A senior source told FE that the insurance behemoth’s valuation is “veering towards 1.1 times its underlying value (of Rs.5.4 trillion),” citing how some of its global rivals, like as the state-owned China Life Insurance Company, are valued.

“If we can resolve all of these difficulties by the end of this week, we expect to file a final offer document next week,” the official said. The Centre will also seek the Securities and Exchange Board of India (Sebi) to have the IPO size reduced to less than 5%, but it believes that a 15% green shoe option, which will be activated if the issue is over-subscribed, will increase the sale to 5% or even slightly higher.

The overall IPO size is now Rs.30,000 crore, resulting in a 5% reduction of the government’s holding in the insurance colossus.

The current adjustment lowers the LIC’s valuation from Rs.10-11 to Rs.6 lakh crore, or 1.1 times the underlying value of Rs.5.4 lakh crore. Embedded value is a measure of the value of an insurance company’s consolidated shareholders.

Retail investors will receive 35% of the public offering, policyholders will receive 10%, while LIC personnel would receive 5%.

The IPO would make a significant contribution to the current financial year’s divestiture proceeds. Divestment receipts are expected to reach Rs.65,000 crore in 2022-23, up from Rs.13,531 crore the previous financial year.