Ahead of IPO, anchor investors show massive interest in LIC
The Life Insurance Corporation of India's (LIC) initial public offering (IPO) is set to be launched on May 4 and will remain for subscriptions until May 9, PTI reported. The upcoming IPO of the country's largest insurer has attracted massive interest from anchor investors. It received a whopping Rs. 13,000 crore worth of investment commitments from such investors, Hindustan Times reported. Here's more.
- LIC's IPO would massively contribute to the budgeted disinvestment proceeds in the current financial year, said reports.
- Through this IPO, which values LIC at Rs. 6 lakh crore, the government will sell a 3.5% stake in LIC to fetch Rs. 21,000 crore.
- The government earlier planned to sell a 5% stake in the insurance giant but reduced the issue size to 3.5% last week.
Investment commitments of Rs. 13,000cr to the LIC IPO from anchor investors is reportedly more than double the value of shares offered to such investors. Hindustan Times quoted sources as saying the total commitments from over 100 global and domestic investors are much higher than the allotment size of Rs. 6,300cr for anchor investors. However, the anchor book allotment is yet to commence officially.
"Shares of LIC will...be offered at a price of around Rs. 949 per share at the lower end of the IPO price band...anchor investors will be subjected to a lock-in of 30 days," a source told HT. Private equity funds, domestic mutual funds, global pension funds, and sovereign funds have already committed investments. "This will ensure a wide shareholding pattern," the source added.
According to the Securities and Exchange Board of India (SEBI) norms, companies valued over Rs. 1 lakh crore should sell a 5% stake in an IPO. So, the government recently sought exemption from the 5% stake rule from SEBI, PTI reported. To note, international actuarial firm Milliman Advisors pegged LIC's embedded value at about Rs. 5.4 lakh crore as of September 30, 2021.
Embedded value is a measure of consolidated shareholders' interest value in an insurance company. It indicates the corporate value of insurance companies. It is calculated by adding the present value of future profits of a firm to the net asset value of capital and surplus.
LIC IPO plans had faced troubles owing to market volatility triggered by the Russia-Ukraine war, soaring oil prices, and monetary tightening by central banks. So, the government last week decided to lower the issue size to a 3.5% stake from 5%. "This is being done to ensure that IPO investors get enough headroom to gain through the year," HT quoted its source as saying.
The final allotment to anchor investors will be around Rs. 6,300 crore after the government decreased the issue size to 3.5%—around 22cr shares worth over Rs. 21,000cr. Also, around 60% of shares offered to qualified institutional buyers (QIBs) can be sold to anchor investors. So, anchor investors can separately obtain more shares from the QIB quota, which will offer shares worth Rs. 10,500 crore.
LIC has reserved 10% of the IPO issue size for policyholders and 5% for employees. It is also likely to offer discounts to them. Policyholders can claim their quota only when their LIC policy and PAN are linked. LIC has also earmarked up to 35% of the total size for retail investors. Under these categories, one can invest a maximum of Rs. 2 lakh.