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MUMBAI/NEW DELHI : Life Insurance Corp. of India’s (LIC) upcoming initial public offering has received 13,000 crore worth of investment commitments from anchor investors, more than twice the value of shares offered to such investors, three people with direct knowledge of the development said.

The total commitment from over 100 global and domestic investors is more than the 6,300 crore allotment size to anchor investors, they said, requesting anonymity. However, a formal anchor book allotment is yet to begin.

Scale of the sale
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Scale of the sale

“The government has decided not to divest more than 3.5% stake for at least a year from the listing date,’’ said the first person cited above. “This is being done to ensure that IPO investors get enough headroom to gain through the year," one of the three people said.

The government’s stake sale in India’s largest insurer is still much lower than the at least 5% stake sale it had originally planned. Geopolitical tensions, soaring oil prices and monetary tightening by major central banks have made global investors skittish about emerging markets stocks, crimping demand for LIC’s shares.

Waning investor demand after Russia’s invasion of Ukraine has also squeezed valuations.

“Shares of LIC will now be offered at a price of around 949 per share at the lower end of the IPO price band, and anchor investors will be subjected to a lock-in of 30 days. Global pension funds, sovereign funds, private equity funds and domestic mutual funds have already given their investment commitment to LIC. This will ensure a wide shareholding pattern in LIC, which will help the board maintain corporate governance standards and enhance transparency," the first person said.

LIC’s IPO will open for subscription from 4 May to 9 May, the person said. And, anchor investors who do not get enough shares during the anchor allotment can separately procure more shares of LIC from the qualified institutional buyers’ quota, which will offer shares worth at least 10,500 crore.

An LIC spokesperson declined to comment. An email sent to the spokesperson for the department of investment and public asset management (Dipam) did not elicit any response until press time.

Though the commitments from anchor investors stand at around 13,000 crore, the final allotment to anchor investors will be around 6,300 crore as the issue size has been slashed by the government to a little more than 21,000 crore. Only 60% of the shares offered to qualified institutional buyers (QIBs) can be sold to anchor investors.

LIC’s IPO will be the first in the country to offer merely a 3.5% stake to the public, lower than the 5% regulatory minimum stipulated by the Securities and Exchange Board of India (Sebi). “The government wants to keep the supply of LIC shares limited in the market, which is why both stake dilution amount and valuation have been revised from the original estimates," said the first person.

LIC is valued at 6 trillion, which is just 1.1 times its original embedded value of 5.39 trillion, according to the revised estimates of the government. However, the embedded value may also be revised in the updated IPO documents that have been filed by the government with Sebi on Monday.

On 13 April, Mint first reported that the government had slashed the valuation it is seeking for LIC to make the initial share sale attractive.

Mint reported last week that the country’s largest insurer reported a stellar performance, with the first-year premium collection, a key metric, rising 7.9% to 1.98 trillion for the year ended 31 March. LIC sold 21.7 million policies in the year ended 31 March, 3.54% more than the previous fiscal, boosting its market share to 74.6% in terms of policies sold.

LIC’s improved financials and robust demand from anchor investors may help the government attract investors in the IPO even though the actual subscription may well depend on the discount that is being anticipated by various classes of retail investors. In the IPO, 10% of the shares on offer will be reserved for LIC’s policyholders. For employees, 5% shares will be reserved. Both employees and policyholders will get a chance to book LIC IPO at a discounted price. The reservations, discounts and issue price will be decided by the bankers and the government on Wednesday morning.

However, a senior government official said that discounts for policyholders and retail investors could be lower than the typical 10% as the government is aiming to avoid large scale profit booking on the day of the listing. “If the discount is high, it will create pressure on institutional investors to buy in case there is a high number of share sales by retail investors. The final percentages will be decided shortly."

Since the government will be selling a 3.5% stake in LIC during the IPO, the insurer may be given an exemption from complying with Sebi’s rule that requires publicly traded companies to achieve a minimum public shareholding of 25% in five years.

The government and Sebi are currently discussing ways to relax the norm on minimum public shareholding for LIC, and according to the current discussions, LIC may be given more than five years, as a special exemption, to achieve the minimum public shareholding target, according to the other two people cited above.

“The norm on achieving the minimum public shareholding target of 25% in five years may be relaxed for LIC and can go up to 10 years. It is being discussed with Sebi. The change will be done through an amendment," the government official cited above said, requesting anonymity.

LIC’s IPO will be the largest public issue to hit the Indian market, and the government is going all-out to ensure it goes through smoothly amid a volatile market.

So far, Paytm’s initial share sale in 2021 was the biggest in the country at 18,300 crore, followed by Coal India Ltd at 15,500 crore in 2010 and Reliance Power at 11,700 crore in 2008.

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