Lukewarm response to New India IPO as HNIs stay away; LIC plays saviour

More than 80% of issue sold on strength of bids placed by country's largest life insurer

The Rs 9,600-crore initial public offering (IPO) of The New India Assurance Company got lukewarm investor response, with shares meant for retail and high net-worth individuals (HNIs) remaining undersubscribed. The IPO garnered just 1.2 times subscription, with qualified institutional buyers (QIB) investor category getting 2.4 times subscription, while retail and HNI segment getting only 12 per cent and 11 per cent subscription, respectively.

Within the QIB category, a bulk of the bids came from state-owned insurance giant Life Insurance Corporation (LIC). According to investment banking sources, LIC placed bids through multiple brokers worth between Rs 8,000 crore and Rs 9,000 crore. The total demand from overseas investors was worth less than Rs 100 crore. Mutual funds placed bids worth about Rs 230 crore. Retail investors, who were being offered a discount of Rs 30 per share on the issue price, placed bids worth Rs 360 crore.

Industry observers said this was one of the weakest responses for public sector undertaking (PSU) IPO. Last month, General Insurance Corporation of India's (GIC Re's) Rs 11,300-crore IPO had seen a slightly better response as its offering was subscribed 1.4 times. It saw close to 650,000 applications. In comparison, New India got only 137,000 applications. GIC had seen "Investors turned wary after GIC Re got listed at a discount. Also, most brokerages had termed the New India IPO was expensive, with limited scope for listing day gains. This resulted in a lukewarm response," said an investment banker asking not to be quoted.

The price band for the New India IPO was Rs 770-800 per share, valuing the country's largest general insurer at Rs 63,448 crore to Rs 65,920 crore.

"At the higher end of the band, the issue is priced at 5.2 times its FY17 book value (BV) and at 1.8 times its BV, including fair value change account). It appears expensive, considering a mere 6.8 per cent return on equity (RoE), operating loss of Rs 901 crore and declining net profit," Centrum Broking had said in a note to clients, asking them to 'avoid' the IPO.

Angel Broking had assigned a 'neutral' rating to the IPO citing subdued RoE, inconsistent profit growth and a higher combined ratio of the insurer.

Even the unofficial grey market activity suggested that the stock would be available at a cheaper price post listing.

Through the IPO, New India raised Rs 1,920 crore in fresh capital, which will be used to meet future capital requirements, improving the solvency margin and solvency ratio. Meanwhile, the government raised Rs 7,680 crore through the IPO as a part of its 2017-18 disinvestment programme. Following the IPO, the government holding in the company will fall from 100 per cent to 85.4 per cent.

New India's IPO was handled by Kotak Mahindra Capital, Axis Capital, Nomura, IDFC Bank and Yes Securities.