The Indian government has more than halved the amount it is seeking to raise from the initial public offering of state-owned Life Insurance Corporation of India to less than $3bn after testing investor appetite in jittery markets.
Bankers working on the long-anticipated deal had expected a 5 per cent float of LIC, a life insurance and asset management behemoth, to raise between $6bn and $8bn.
New Delhi had aimed to close the deal before last fiscal year’s end on March 31. But it is now selling a 3.5 per cent stake for as much as $2.74bn, implying an overall equity value of less than $80bn.
“This is right sized considering the capital market environment,” said Tuhin Kanta Pandey, secretary of the finance ministry’s divestment and privatization unit.
“Even after the reduced size of about [$2.7bn]the LIC IPO is going to be the biggest” in the history of India’s capital markets, he added.
“Ultimately the market and investors will price this deal,” said Pandey at a press conference in Mumbai.
The outlook for India’s biggest IPO has been clouded by market turbulence caused in part by rising US interest rates and Russia’s war on Ukraine.
The government said it would offer just 3.5 per cent of LIC’s shares to the public at a price of Rs902-949 ($11.77-$12.38), according to regulatory filings made available on Wednesday.
“This is frankly not the ideal time to make a mega IPO,” said Pronab Sen, India’s former chief statistician, about the market environment.
Sen said he thought the government was “testing the waters” with the smaller flotation. “This is something they really haven’t done before,” he said, “so they are trying to figure out the valuation”.
India’s finance minister has drastically scaled back the government’s divestment target for the new financial year to Rs650bn from its ambitious goal of Rs1.75tn for the year before, of which it only raised a tenth.
LIC held a monopoly on selling life insurance in India for almost four decades, helping it become a colossus with assets under management of $495bn — more than three times that of all other life insurers in India, according to its prospectus.
But some investors are concerned over LIC’s growth potential, as private competitors whittle away its market share, as well as about potential political interference.
LIC’s February prospectus said the company “may be required to take certain actions in furtherance of the [government’s] economic or policy objectives”.
LIC said it had an “Indian embedded value”, a critical book value measure for the sector, of Rs5.4tn.
The IPO opens to offers from anchor investors on May 2, and to the general public from May 4. Discounts are on offer for LIC employees and policyholders. The issue is expected to close on May 9, with trading set to begin within a week.