LIC IPO size may be cut to Rs 21K cr; issue likely to hit market on May 2

The size of the Life Insurance Corporation of India’s (LIC’s) initial public offering (IPO) may be slashed to Rs 21,000 crore, said people in the know. The IPO, however, may come with a greenshoe option of Rs 9,000 crore. The total IPO size, after accounting for the greenshoe option, will work out to Rs 30,000 crore and will lead to 5 per cent dilution of the government stake.

The government currently holds 100 per cent stake in LIC. The IPO is now expected to hit the market on May 2, sources said. The insurance giant’s valuation may be reduced to just Rs 6 trillion, which will be 1.1 times its embedded value of Rs 5.4 trillion, they added.

The government filed LIC's draft papers with the Securities and Exchange Board of India (Sebi) in February, and the aim was to raise around Rs 65,000 crore at a market valuation of Rs 12 trillion.

Even at Rs 21,000 crore, the LIC IPO will be the biggest ever, topping the current record of Rs 18,300 crore held by Paytm. 

“The sharp scale-back in valuation is to ensure that the IPO sails through smoothly. Also, the government wants to leave a lot of gains on the table for investors so that they are encouraged to participate in the IPO as well as the subsequent tranches,” said an investment banker.

This will be the first time the greenshoe option will be used for a domestic IPO. A greenshoe option gives the issuer the option to retain excess subscription. It helps the company adjust its issue to the demand and the market condition.

LIC’s IPO is coming at a time when secondary-market conditions have turned volatile due to sustained selling by foreign portfolio investors (FPIs) amid the US Federal Reserve’s decision to aggressively tighten monetary policy.

If the IPO is indeed launched at Rs 6-trillion valuation, it will be at a significant valuation discount to listed private insurers, which trade between 3 and 4 times their embedded value.

LIC’s IPO will also get a reprieve from the 90-day anchor lock-in norms. Sources said Sebi had decided to implement the new norms in a staggered manner. For IPOs of more than Rs 10,000 crore, the new rules around anchor lock-in will become applicable from July 1. Meanwhile, the new rules have already become applicable for IPOs of less than Rs 10,000 crore. Under the new rules, the holding period for 50 per cent of anchor investors will be 90 days, and for the remaining, it will be 30 days, the same as earlier.

BlackRock, Abu Dhabi Investment Authority, Singapore’s GIC, Canada’s CPPIB, Fidelity, and Capital International are some of the marquee investors that are likely to invest in the anchor category. Besides, all leading mutual funds (MFs) such as SBI MF, Aditya Birla Sun Life MF, ICICI Prudential MF, and HDFC MF could also participate.