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LIC IPO: किसको मिलेगा कितना डिस्काउंट? #Shorts



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Explained: After revised pricing, should you invest in LIC’s IPO?


How is the IPO priced?

LIC on Wednesday priced its IPO, the largest in the history of the capital market despite a reduction in size, at Rs 902-949 per share. LIC has offered a discount of Rs 60 for policyholders and Rs 45 for retail investors and employees. The IPO will open on May 4 and close on May 9.

The government will sell 22.13 crore shares through the offering. The anchor book will open on May 2, and the issue will open for retail investors two days later. Investors can bid in multiples of 15 shares. The size of the IPO was cut from Rs 65,000 crore to Rs 21,000 crore as the Russian invasion of Ukraine and sustained selling by foreign portfolio investors (a net of Rs 1,48,078 crore since the beginning of December 2021) affected the stock markets.

How should investors view the issue?

A couple of leading mutual fund managers said the reduction in valuation has made the issue attractive. “While there is a lot of inherent strength in the company and there are growth prospects, the valuations too seem fine now after the revisions. As the market is not witnessing a mad bull run that was being seen over the last year, there is a possibility that investors may not get immediate listing gains. But it will generate decent returns over the next three to four years,” a leading fund manager said.

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“There is a lot of strength in the company. There are many categories where LIC is not present on the business front, and so there is a lot of scope for it to explore these and grow. As LIC had a monopoly, one can only lose market share from such a position. It is, however, important to note that the company still maintains around a 60% market share and it could be a good company to invest with a medium- to long-term view,” said another fund manager.

Some see the listing as part of a strategic vision of the government aimed at long-term value creation for shareholders. “Our take is that we won’t be able to determine the true value in the case of LIC as it is a very big entity in itself. There are two ways to look at it: one in the present case where everyone is buying policies to safeguard themselves from uncertainties… second, due to huge buying power in the hands of consumers, the margins might reduce. One can subscribe with a long-term perspective,” said Manoj Dalmia, founder and director, Proficient Equities Limited.

How does the valuation compare with that of other insurers?

Yash Gupta, analyst at Angel One Ltd, said that at the offer band, the IPO is valued at a Price/Embedded Value (P/EV) of 1.06-1.1 on its September 2021 EV of Rs 539,686 crore, which is at a significant discount compared to the P/EV for listed private life insurance companies. HDFC Life Insurance is trading at a P/EV of 3.9, SBI Life at 3.2, and ICICI Pru Life at 2.5 on their respective December 21 EVs.

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“Although LIC valuations appear to be cheap compared to listed private players, investors need to keep in mind that LIC has a lower VNB margin (value of new business) of 9.9% in FY2021 compared to private players that have VNB margins of 22-27% due to higher share of participation and group products. Despite lower margins and inferior business mix, we believe that the IPO is being priced reasonably and offers value to investors with a long-term view,” Gupta said.

There is, however, a section of the market that is not fully convinced about the valuation. “The ongoing volatility in stock markets due to the Russia-Ukraine war has forced the government to cut the issue size to 3.5%. However, the price band is kept on the higher side, which is not an attractive price for adequate return growth. We recommend that investors may subscribe for listing day gains and wait for lower levels for long-term investment,” said Ravi Singh, Vice-President and Head of Research, ShareIndia.

Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management, said, “This is a fair and attractive valuation… We want to champion LIC as a long-term value creator in the equity markets.” He said the issue is right-sized considering the capital market environment and will not crowd out capital and monetary supply even under the current constraints.

How big is LIC?

LIC, formed by merging and nationalising 245 private life insurance companies on September 1, 1956, with an initial capital of Rs 5 crore, now manages around Rs 40 lakh crore assets. It is the fifth largest life insurer globally and the largest asset manager in the country. As on December 31, 2021, it covered 91% of all districts and had 1.33 million individual agents, and had a market share of 61.6% in terms of premiums or GWP, 61.4% in terms of New Business Premium, 71.8% in terms of number of individual policies issued, and 88.8% in terms of number of group policies.

What are the advantages of listing?

LIC’s profile will get a boost. Investors can trade in its shares or keep them long-term. LIC will become more transparent and answerable to shareholders for any mismanagement. It will have to follow the listing guidelines of stock exchanges and SEBI regulations.

While Pandey has ruled out a follow-on issue in the current financial year, markets are expecting more offers in the next financial year. Moreover, the insurtech industry will benefit. “Most of the public insurers in the country were still evaluating digitisation of customer journeys, which will get a boost post the LIC IPO,” said Surjendu Kuila, co-founder and CEO, Zopper.





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Ukraine crisis: Govt may defer LIC IPO


With the Russia-Ukraine war roiling financial markets globally, the government may defer the mega IPO of LIC and wait for an opportune time to get the maximum value of its holding in the state-owned insurance behemoth, sources said.

“It’s a full blown war now so we will have to assess the situation for going ahead with the LIC IPO,” a government source said.

Finance Minister Nirmala Sitharaman too had indicated review of the IPO in view of the evolving geopolitical situation.

“Ideally, I would like to go ahead with it because we had planned it for some time based purely on Indian considerations,” Sitharaman had said in an interview with the Hindu Business Line. “But if global considerations warrant that I need to look at it, I would not mind looking at it again.” The IPO was expected to hit the market this month.

The Russia-Ukraine war entered its seventh day on Wednesday, with fighting intensifying in Ukrainian capital Kyiv and other big cities.

The government was expecting to garner Rs 63,000 crore by selling 5 per cent stake in the life insurance firm to meet the curtailed disinvestment target of Rs 78,000 crore in the current fiscal.

If the initial public offering (IPO) is deferred to the next fiscal, the government would miss the revised disinvestment target by a huge margin.

So far, the government has raised Rs 12,030 crore through CPSE disinvestment and Air India’s strategic sale this fiscal.

The government had earlier projected to garner Rs 1.75 lakh from disinvestment during 2021-22.

The IPO is offer for sale (OFS) by the Government of India and there is no fresh issue of shares by LIC. The government holds 100 per cent stake or over 632.49 crore shares in LIC. The face value of shares is Rs 10 apiece.

The LIC public issue would be the biggest IPO in the history of Indian stock market. Once listed, LIC’s market valuation would be comparable to top companies like RIL and TCS.

So far, the amount mobilised from IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.

Last week, the government had permitted up to 20 per cent foreign direct investment (FDI) under automatic route in IPO-bound LIC with an aim to facilitate disinvestment of the country’s largest insurer.

The decision in this regard was taken by the Union Cabinet, chaired by Prime Minister Narendra Modi.

Foreign investors may be desirous of participating in the mega IPO. However, the existing FDI policy did not prescribe any specific provision for foreign investment in LIC, which is a statutory corporation established under the LIC Act, 1956.

Since as per the present FDI policy, the foreign inflows ceiling for public sector banks is 20 per cent under government approval route, it has been decided to allow foreign investment of up to 20 per cent for LIC and such other corporate bodies.

Further, in order to expedite the capital raising process, such FDI has been kept under the automatic route, as in the case of the rest of the insurance sector, a source said.

Setting the stage for the country’s biggest-ever public offering, LIC on February 13 filed draft papers with capital market regulator Sebi.

The IPO of over 31.6 crore shares or 5 per cent government stake was likely to hit D-street in March. Employees and policyholders of the insurance behemoth would get a discount over the floor price.

According to the draft red herring prospectus (DRHP), LIC’s embedded value, which is a measure of the consolidated shareholders value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.

Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around Rs 16 lakh crore.





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Potential investors in LIC’s giant IPO fret over govt control of insurer: Report


Prospective investors in Life Insurance Corp of India’s (LIC) $8 billion IPO are seeking assurances from company management that it will not sacrifice their interests to meet the goals set out by the government, its controlling shareholder, sources said.

In virtual roadshows for India’s biggest ever public listing, LIC management and the IPO bankers have been peppered with questions about the insurer’s past investments and their quality, four people with knowledge of the matter said.

LIC has in recent years been a key buyer of shares in state-owned firms sold off by New Delhi, often bailing out less-than-successful public issues of shares. It has also been tapped to rescue struggling financial institutions.

Potential conflicts of interest issues are taking centre-stage in the IPO roadshows that began last week and are expected to go on till the end of the month, the sources said.

“The government tends to act as a regulator, manager and shareholder and it tends to get its position confused at different points of time,” said Shriram Subramanian, founder of proxy advisory firm InGovern, who has not attended the roadshows.

“The government ministries may tend to think that LIC is 100% under their control and would like to exert that kind of an influence whenever required and that is a concern for investors,” Subramanian added.

How effectively LIC and its investment bankers are able to address the investor concerns will help in determining the insurer’s valuation in the float, and consequently the state of finances of the Indian government which is banking on proceeds from the IPO to plug an annual fiscal deficit hole.

The Finance Ministry did not respond to emails seeking comment while LIC declined. The sources declined to be identified as the discussions are private.

In its draft prospectus, the insurer cited involvement of the government, which owns 100% of LIC now and is expected to own about 95% after the IPO, as a risk factor and said that minority shareholders could be disadvantaged by government action.

LIC chairman M R Kumar told a news conference on Monday that potential investors should not worry about government control post the IPO as decisions are taken by its board and not by the government.

PARALLELS TO COAL INDIA?

LIC, which was formed six decades ago when India’s insurance sector was nationalised, straddles the business in the country, with more than 280 million policies and over 60% of the insurance segment.

It is also a big investor, owning as of March last year 23.5 trillion rupees ($315 billion) worth of government securities, higher than even the central bank, out of the total central and state government securities worth 115.2 trillion rupees, according to the prospectus.

In 2019, it took over troubled IDBI Bank as the government struggled to find a viable buyer for the lender whose shares had tanked and nearly a third of its book had gone bad.

LIC said in its draft papers that it may have to infuse more capital into IDBI Bank even though it has been pursuing a buyer for its more than 50% stake in the lender.
Some market analysts and fund managers are drawing parallels of LIC with Coal India, which made its market debut in 2010 and, despite being a monopoly, has lost over half its equity value.

In its last earnings call, Coal India chairman and managing director Pramod Agrawal said one of the reasons for its current low market valuation could be because sometimes government takes steps that are not appreciated by shareholders.

“If LIC makes decisions that are not beneficial for the shareholders then they will raise concerns,” said Ashvin Parekh, an independent financial services consultant.

“We have seen that happen earlier when Children Investment Fund exited from state-owned Coal India after listing as it had concerns over what the majority shareholder was doing and LIC could also face similar pushbacks from its shareholders.”





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Government plans to allow 20% foreign investment in LIC IPO: Report


India is considering a proposal for foreign investors to own as much as 20% in Life Insurance Corporation, according to a person with knowledge of the matter, which would enable them to participate in the nation’s biggest initial public offering.

Under discussion is a plan to amend FDI rules so that investors can pick up the stake without the government’s approval under the so-called automatic route, the person said, asking not to be identified as the deliberations are private. Government officials are due to meet and discuss the proposal as early as Wednesday afternoon in New Delhi, the person said.

A finance ministry spokesman didn’t immediately respond to calls seeking comment.

Prime Minister Narendra Modi’s government is relying on money from the state-run insurer’s IPO to meet its budget deficit target for the financial year through March 2022 as the pandemic hit tax collections. While FDI of as much as 74% is permitted in most Indian insurers, the rules don’t apply to LIC because it is a special entity created by an act of parliament.

The Reserve Bank of India defines FDI as purchase of a stake in a listed company that’s 10% or larger by an individual or entity based abroad, or any foreign investment in an unlisted firm. So the clearance for FDI in LIC not just allows global funds to participate in the IPO but also opens doors for a significant stake purchase after the listing.

The government is seeking a valuation of between 8 trillion rupees and 10 trillion rupees ($134 billion) for LIC, and is considering a stake sale of 5%-10%, which could raise between 400 billion rupees and 1 trillion rupees, Bloomberg had reported earlier.

Banks started engaging with investors last month, with a potential listing expected between January and March in 2022.



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Government likely to block Chinese investment in insurance giant LIC’s IPO: Report


New Delhi wants to block Chinese investors from buying shares in Indian insurance giant Life Insurance Corp (LIC) which is due to go public, four senior government officials and a banker told Reuters, underscoring tensions between the two nations.

State-owned LIC is considered a strategic asset, commanding more than 60% of India’s life insurance market with assets of more than $500 billion. While the government is planning to allow foreign investors to participate in what is likely to be the country’s biggest-ever IPO worth a potential $12.2 billion, it is leery of Chinese ownership, the sources said.

Political tensions between the countries rocketed last year after their soldiers clashed on the disputed Himalayan border and since then, India has sought to limit Chinese investment in sensitive companies and sectors, banned a raft of Chinese mobile apps and subjected imports of Chinese goods to extra scrutiny.

“With China after the border clashes it cannot be business as usual. The trust deficit has significantly widen(ed),” said one of the government officials, adding that Chinese investment in companies like LIC could pose risks.

The sources declined to be identified as discussions on how Chinese investment might be blocked are ongoing and as no final decisions have been made.India’s finance ministry and LIC did not respond to Reuters emailed requests for comment. China’s foreign ministry and commerce ministry did not immediately respond to requests for comment.

Aiming to solve budget constraints, Prime Minister Narendra Modi’s administration is hoping to raise 900 billion rupees through selling 5% to 10% of LIC this financial year which ends in March. The government has yet to decide on whether it will sell one tranche of shares seeking to raise the full amount or choose to seek the funds in two tranches, sources have said.

Under current law, no overseas investors can invest in LIC but the government is considering allowing foreign institutional investors to buy up to 20% of LIC’s offering.

Options to prevent Chinese investment in LIC include amending the current law on foreign direct investment with a clause that relates to LIC or creating a new law specific to LIC, two of the government officials said.

They added that the government was conscious of the difficulty in checking on Chinese investments that could come indirectly and would attempt to craft a policy that would protect India’s security but not deter overseas investors.

A third option being explored is barring Chinese investors from becoming cornerstone investors in the IPO, said one government official and the banker, although that would not prevent Chinese investors from buying shares in the secondary market.

Ten investment banks including Goldman Sachs, Citigroup and SBI Capital Market have been chosen to handle the offering.

($1 = 73.8200 Indian rupees)



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