The Government has cut the planned sized of its initial public offering of Life Insurance Corp of India (LIC) by a massive 60 per cent due to market turbulence caused by Russia’s war on Ukraine and economic slowdown worries. But the sale of state-run LIC will still be the country’s biggest ever IPO with the government hoping to raise as much as Rs 210 billion. But that’s far below the government’s initial goal of collecting 500 billion rupees for its stake in 65-year-old LIC.

“The time has come for LIC to be listed. I believe all LICians will work together to make it a huge success, and from now on we will call it LIC 3.0," LIC chairman M. R. Kumar told a news conference. "LIC struggled in the first two decades to sell insurance in India. Then it gathered momentum in the ’70s and ’80s. That was LIC 1.0. Then it adapted to the competition, which was LIC 2.0. And now this is LIC 3.0," said Kumar. After various delays, the government finally on Wednesday filed its final prospectus for the issue with exchanges. It will sell 221.4 million shares of LIC in a price band of Rs 902 to Rs 949.

Bigger than Paytm

This sale of a part of what is an Indian household name will be bigger than the Rs 193-billion IPO by Paytm operator One97 Communications last November. LIC shares are expected to list on the stock exchanges on May 17. Department of investment secretary Tuhin Kanta Pandey told reporters that although the size of the offering has been lowered, it will still be “the biggest ever IPO” in the country. "This is right-sized considering the capital market environment,” he said, adding he expected strong participation from small investors.

Pandey called LIC’s valuation “fair and attractive” and said it was established after widespread consultation with merchant bankers. The government wants to champion LIC as a long-term value creator for shareholders, he added. Under the government’s plan, it will sell a 3.5 per cent holding in Mumbai-based LIC after initially aiming to flog 5 per cent. The cash-strapped government is planning to use the proceeds to help plug the budget deficit which is yawning wider as energy costs climb.

'A great opportunity'

The LIC IPO “is a great opportunity and something was considered unthinkable and it was always an investors and is now coming to investors to become invested in,” said Pandey. The decision to lower the size of the offering comes as foreign investors have deserted the country in droves. While domestic investors have stayed in the Indian market, foreign investors have pulled nearly $20 billion from Indian stock markets.

Ten per cent of the offering or 22.14 million shares will be set aside for LIC policyholders. They’ll also get a Rs 60 discount on the issue price. Some 1.58 million shares will be set aside for employees. Retail investors will be given a discount of 45 rupees. The offer will be open for buyers next week from May 4-9 but will start for anchor investors on May 2. This will be a test of the health of the Indian markets in a less favourable investment climate.

No follow-on (FPO)

Kumar said the government did not expect to “divest more of LIC in the near future” but added that “over a period of time, we should be able to reach a private industry margin (stake) of 20 per cent to 25 per cent.” “I believe all LICians will work together to make it a huge success,” Kumar said. Pandey later stated that the government has “no plan to bring any follow-on (FPO) in the next one-year.”

LIC, which has close to $500 billion in assets, has 250 million policy holders, over 100,000 employees and controls nearly two-thirds of the Indian market with 286 million policies.

Behind schedule

The government is behind schedule on the listing. The IPO was initially slated to be held in 2021 but Covid-19 derailed the government’s plan. Then the government set a March deadline for the listing but that also went by the board. LIC has dominated the market since first prime minister Jawaharlal Nehru welded together the country’s 245 insurance companies and provident fund societies in the mid-1950s with the aim of offering life insurance to all strata of society. For years, LIC has acted as investor of last resort for governments seeking to bail out floundering state-run firms. Some analysts have voiced doubt about whether the company can perform as well as nimble privately listed rivals if governments keep using the state-run insurer to rescue government-owned companies that get into trouble.