What does a delayed LIC IPO mean?

Uncertainty has gripped the LIC IPO because of Russia's invasion of Ukraine and its impact on the markets. An official told Business Standard that the government might have to rework Life Insurance Corporation of India's valuation for its IPO if the listing is pushed beyond May. It would also impact the market value of LIC, that is currently being internally estimated at 3-4 times of the embedded value

As of 30th September, the embedded value of LIC for the April-September 2022 period is pegged at 5.4 trillion rupees. This embedded value will have to be re-evaluated if the issue is pushed beyond 12th May, as approved by the Securities and Exchange Board of India. This would impact LIC's market value, which is internally estimated to be 3-4 times the embedded value.

Under such circumstances, the government would also be required to seek fresh approval from Sebi for the life insurer’s IPO.

The government official said that while the Centre had planned the LIC IPO for the second week of March, market volatility due to the war has delayed the proceedings. Fresh papers would have to be filed, with updated valuation of the insurer, if the listing gets pushed beyond 12th May.

LIC had filed its draft red herring prospectus with Sebi on 13th February. And the markets regulator had approved it last week. Now based on Sebi's feedback and after fulfilling certain requirements, the government will soon file the red herring prospectus too. This will include both the issue size of the sale and the pricing band.

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The government is looking to sell 5 percent of its shares in LIC. The market is expecting the size of the issue to be about 60,000-65,000 crore rupees, valuing LIC at around 13 trillion rupees. However, the insurer's valuation would only be clear once the government files the red herring prospectus.

Since the markets have been choppy, there is an apprehension that there might be a major impact on the LIC IPO. This could hurt the government's plan to raise about over 60,000 crore rupees from the IPO.

Whether or not the government can carry out the initial public offering of LIC before 31st March will also have an impact on the FY22 fiscal deficit target.  

The government is monitoring volatility in the market on a daily basis. The decision to launch the IPO will be taken once this volatility normalises. The government is hopeful of bringing out the IPO before May.

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