A much-awaited initial public offering for India’s state-run Life Insurance Corp began this week with retail investors allowed to subscribe for its shares starting Wednesday.
The IPO, expected to raise up to $2.74bn, is India's largest ever. Its partial listing is part of plans by prime minister Narendra Modi to privatize some industries and boost state coffers, and analysts expect massive interest, especially from first-time investors.
The offering was scaled back to 3.5 per cent of the company’s equity from 5 per cent given uncertainties prevailing in global markets such as the war in Ukraine and the trend toward raising interest rates to combat inflation, which has pulled share prices lower in many markets.
The Indian government also pushed back the stock offering from March to May, taking market conditions into consideration.
A household name in India, Life Insurance Corp is the fifth largest global insurer in terms of business and premium income and was formed by the merger in 1956 of 245 private insurance companies.
S R Srinivasan, an investment adviser, said the company is one of India's most trusted brands. “So it’s got a more than 60 per cent market share – that is rare. There are very few places in the world where you find a 60 per cent market share player,” he said.
The insurance giant said it raised Rs 56bn ($731m) in an offering to anchor investors earlier this week, the Press Trust of India news agency reported.
The wider public offering ends Monday and the company's shares are expected to begin trading on 17 May.
The government earlier hoped to raise around $8bn by selling the bigger 5 per cent stake in the company at a higher price.
But Tuhin Kanta Pandey, secretary in the Finance Ministry’s Department of Investment and Public Assets Management, said the IPO’s current size is right, given current market conditions.
``While global sentiments are weak, Indian markets are strong due to domestic flows," Pandey said.
Shashank Agarwal, founder of wealth management company Addwise Capital, said the reduced size of the IPO raises the chances it will be oversubscribed.
According to the offering's prospectus, the government will sell up to 221 million equity shares for Rs 902 to Rs 949 ($11.78-$12.40) a share, with a 60 rupee discount for policyholders and 45 rupees off for retail investors and employees.
The IPO values the company at nearly Rs 6 trillion ($80bn). Government estimates in February put the value of the insurer at up to Rs 14 trillion, according to media reports.
The big difference between the current and earlier valuation estimates caused the opposition Congress Party to slam the government over the IPO.
Randeep Singh Surjewala, a party spokesman, said it didn’t object to the share offering.
“But the intent, purpose, and modus operandi of the government’s desperation to list the LIC IPO, despite lower valuations, omitting to take into account key valuation indices, global uncertainties and a volatile market is deeply intriguing and highly questionable,” Surjewala said.
Rahul Jain, director of the Department of Investment and Public Asset Management defended the listing, and said the response to the IPO launch is wonderful.” More than 60 million policyholders have already indicated they would subscribe to the IPO, he said.
Srinivasan also questioned the quality of the company's management, saying the insurer often steps into rescue or help private companies when they get in trouble. “This is the continuing concern — that LIC's assets will not be as well managed as those of its private peers — there's a feeling they make investments that are decided by the government rather than by prudent financial decisions," he said.
Nonetheless, the company is profitable, he conceded. The latest net profit after tax was Rs 29 billion ($391m), according to a prospectus filed last month.
“It is going to be a very keenly watched IPO and I wouldn’t be surprised if it gets heavily or over-subscribed,” Srinivasan said.