LIC IPO: LIC grey market premium hints at listing gain for IPO investors

On April 28, the premium on shares of Life Insurance Corporation of India in the grey market increased by 80%, with the company’s IPO – the country’s largest – slated to begin next week.

According to IPO Watch, which follows unofficial pricing of prospective IPOs, often known as grey market prices, LIC shares commanded a premium of Rs 45 over the higher end of the price band announced for the IPO, compared to Rs 25 on April 27. Experts predict that the grey market premium would rise as the debut date approaches.

The LIC IPO will begin on May 4 and end on May 9. The pricing range is Rs 902 to Rs 949, with a Rs 60 discount for  policyholders and Rs 45 for employees.

The grey market price is a rough estimate of the price at which shares will be listed on the stock exchange. Shares of the state-owned insurer could list with a 5% gain based on the grey market price on April 28, however this could alter later.

The government is selling 221.3 million shares in the IPO, which equates to a 3.5 percent interest in the corporation. The offering has been trimmed back from a February proposal to sell 310 million shares.

According to the government, the decision to list LIC in May was made after considerations such as market demand, market volatility, domestic flows, and the company’s performance were considered.

The government wants to raise Rs 21,000 crore at the top of the price range, compared to Rs 60,000 crore previously. As a result, the LIC is now valued at around Rs 6 lakh crore, down from Rs 17 lakh crore previously.

“The IPO has not gotten cheap but reasonable after the revised valuation,” said Mohit Nigam, head-PMS at Hem Securities. “It will now depend on how its business is handled over the next five years to anticipate the further profits.”

Investors can place bids for as few as 15 shares and in multiples of 15 after that. LIC staff are entitled to around 15.8 million shares, whereas LIC policyholders are entitled to 22.1 million shares.

Qualified institutional buyers will receive half of the issue size, while retail investors would receive 35% of the shares and non-institutional investors will receive 15%.

On May 12, shares will be allocated to successful bidders, and refunds will be refunded to failed bidders’ accounts on the same day. On May 17, LIC shares will be listed on the stock exchanges.