The wait for the mega initial public offering (IPO) of LIC may get longer as the ongoing Russia-Ukraine war has left its impact on global stock markets, including sensex and nifty, according to a PTI report.
While there is no official announcement so far, Finance Minister Nirmala Sitharaman has already indicated review of the LIC’s IPO launch date in view of the evolving geopolitical situation. The LIC’s IPO was expected to hit the market in March.
“Ideally, I would like to go ahead with it because we had planned it for some time based purely on Indian considerations,” Sitharaman had said in an interview with the Hindu Business Line. “But if global considerations warrant that I need to look at it, I would not mind looking at it again,” she said.
WHY GOVERNMENT MAY WAIT?
The central government may defer the mega IPO of the country’s national insurer and wait for an opportune time to get the maximum value of its holding in the state-owned insurance behemoth, PTI reported.
“It’s a full blown war now so we will have to assess the situation for going ahead with the LIC IPO,” a government source told PTI.
INVESTORS’ SENTIMENTS MATTER
Bankers advising LIC on its IPO have pushed the government to defer the launch of the stock offering in the wake of the market jolt caused by Russia’s invasion of Ukraine, according to a Reuters report.
Two bankers familiar with discussions said the investment banks on the deal were piling pressure on the government and raised concerns in a recent closed-door meeting to delay the IPO by saying market conditions were no more conducive due to volatility caused by Russia-Ukraine tensions.
The bankers have told the Indian government that launching LIC’s stock offering would make sense in the coming months when investors are more confident, said one of the bankers, who is directly involved in the negotiations, Reuters report said.
LIC IPO DATE
“We have communicated our concerns… it is likely that a decision on (revised) IPO timing can come by this week,” the banker was quoted as saying by Reuters.
Both the finance ministry and LIC did not immediately respond to requests for comment, according to Reuters.
WHY LIC IPO LAUNCH IN MARCH IS KEY?
The government was expecting to garner Rs 63,000 crore by selling 5 per cent stake in the life insurance firm to meet the curtailed disinvestment target of Rs 78,000 crore in the current fiscal.
If the initial public offering (IPO) is deferred to the next fiscal, the government would miss the revised disinvestment target by a huge margin.
So far, the government has raised Rs 12,030 crore through CPSE disinvestment and Air India’s strategic sale this fiscal.
The government had earlier projected to garner Rs 1.75 lakh from disinvestment during 2021-22.
BIGGEST IPO IN INDIA
The LIC public issue would be the biggest IPO in the history of the Indian stock market. Once listed, LIC’s market valuation would be comparable to top companies like RIL and TCS.
So far, the amount mobilized from IPO of Paytm in 2021 was the largest ever at Rs 18,300 crore, followed by Coal India (2010) at nearly Rs 15,500 crore and Reliance Power (2008) at Rs 11,700 crore.
Last week, the government permitted up to 20 per cent foreign direct investment (FDI) under the automatic route in IPO-bound LIC with the aim of facilitating disinvestment of the country’s largest insurer.
The decision in this regard was taken by the Union Cabinet, chaired by Prime Minister Narendra Modi.
LIC IPO DETAILS
- The IPO is an offer for sale (OFS) by the Government of India and there is no fresh issue of shares by LIC.
- The government holds a 100 per cent stake or over 632.49 crore shares in LIC. The face value of shares is Rs 10 apiece.
- Setting the stage for the country’s biggest-ever public offering, LIC on February 13 filed draft papers with capital market regulator Sebi.
- The IPO of over 31.6 crore shares or 5 per cent government stake.
- Employees and policyholders of the insurance behemoth would get a discount over the floor price.
- According to the draft red herring prospectus (DRHP), LIC’s embedded value, which is a measure of the consolidated shareholders value in an insurance company, has been pegged at about Rs 5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.
- Although the DRHP does not disclose the market valuation of LIC, as per industry standards it would be about three times the embedded value or around Rs 16 lakh crore.
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