LIC IPO to be delayed or not? GoM likely to take a call tomorrow

Merchant bankers say situation not ripe for IPO of this size

A group of ministers is likely to meet on March 4 to decide whether the initial public offering (IPO) of Life Insurance Corporation of India (LIC) can be deferred to next year, considering the volatility in stock markets due to an ongoing war between Russia and Ukraine. 

The alternate mechanism that comprises Finance Minister Nirmala Sitharaman, Road Transport Minister Nitin Gadkari, and Commerce Minister Piyush Goyal is likely to meet March 4-5 and decide on the timeline of the IPO as merchant bankers have advised the current volatility is not conducive for an IPO of this scale, officials said. 

The ministerial panel was to decide on the valuation, issue size, and pricing of the shares of LIC as the insurer eyes a largest listing on Indian bourses.

The IPO of LIC needs adequate support from investors, officials said. Stretching the IPO timeline by a month or two is expected to make the situation more conducive for the public listing, merchants ban­kers have stated this in their interactions with the Centre.  

Investors have been occupied with their current portfolios as they look to exit investments due to losses, and not been able to participate fully in roadshows. Investor feedback is not yet complete, post which the insurer’s valuation would be sealed, officials said.

Although the government is keen to launch the IPO in the current fiscal year and is hopeful that the situation will improve in coming weeks, it will not “want to undersell LIC even at perception level”, one of the officials quoted above said.

“The decision to go ahead with the IPO or defer it, will not be taken solely on the fact of meeting the disinvestment target but considering the preparatory work that has been done. We are hopeful that the volatility in the markets will recede,” the official said.

In high volatility, investors tend to play safe. For a listing of a company like LIC, the government wants the markets to be stable, so that investors get confidence to invest, officials said.

India VIX, an indicator to assess volatility in the market and also referred as fear gauge, stands at 28-29 as compared to a normal of 14-15, making investors jittery, officials added.

The finance minister had on Tuesday said the government was open to reviewing the IPO plans due to prevalent market conditions. “I wouldn't mind looking at it again,” Sitharaman had told Business Line newspaper. “Now, there is a full-scale war. Therefore, I need to go back and review the situation.”

Merchant bankers are in touch with investors globally, and taking their feedback, they added. “The government has not given up hope yet, and the best case scenario is an intervention leading to the halting the war,” officials said. 

LIC had filed the draft red herring prospectus (DRHP) with Securities and Exchange Board of India (SEBI) on February 13. The market regulator’s approval for the DRHP is expected to be received on March 7-8, officials quoted above said. 

Through the IPO, the Centre is looking to sell its 5 per cent or 316 million shares in LIC, that’s considered to be one of the biggest offers globally. The embedded valuation of the insurer has been estimated at Rs 5.39 trillion.