Harried bankers race the clock in Mumbai’s sleek skyscrapers to appraise a company that hasn’t been valued in decades. In New Delhi, bureaucrats work through the night, despite power outages, to put together an initial public offering to rival any in Asia this year.
In the hinterlands, front-page newspaper advertisements inform over 250 million policyholders about the opportunity to own a piece of a company that is nearly as old as post-independence India.
For nearly two years, India has been preparing for a mammoth task: preparing India’s largest insurer, with nearly $500 billion in assets and a valuation of up to $203 billion, for what could be the country’s largest-ever stock listing. The public offering of Life Insurance Corporation of India, or LIC, has been dubbed “India’s Aramco moment” by some bankers. LIC’s debut, like the Gulf oil giant’s $29.4 billion IPO, will test the depth of the country’s capital markets and the global appetite for its state-owned crown jewel.
It’s far from certain that you’ll be successful. Consultants have been poring over reams of policy documents to come up with LIC’s embedded worth. A key valuation metric with about two months until the planned launch. Global investors, according to bankers, are concerned about the independence of an institution that is frequently called upon to save the teetering bank and state assets. Local investors are skeptical that the 65-year old company will be able to compete with up-and-comers. With a minimum dilution of 5%, LIC could raise as much as $10 billion from an IPO with a knock-out listing. That would make it the world’s third-largest insurance-related incident. More importantly, it would bolster Prime Minister Narendra Modi’s image as a market-oriented reformer ahead of crucial state elections, as well as help close a budget deficit.
“If the listing goes through, it could change India’s global image,” said James Beeland Rogers, chairman of Beeland Interests Inc . and Rogers Holdings, who has been investing in emerging markets for decades.
Getting a Glimpse of a Giant
In India, LIC is a household name. The Mumbai-based company, which has 2,000 branches, more than 100,000 employees, and 286 million policies, has a presence in almost every part of the
country. The sheer size of LIC highlights the difficulties of listing something that is effectively a black box. Because the insurer only publishes its balance sheet once a year. There are no publicly available numbers to determine its embedded value. Which is calculated by combining the current value of future profits with the net value of assets. Executives from Milliman and Ernst & Young in charge of the valuation must sift through stacks of policies to account for variables such as mortalities, morbidities, lapses, and surrenders.
It’s difficult to make comparisons with peers. LIC, which was founded in 1956, is governed by a separate parliamentary act from the rest of the country’s insurance companies. According to a source familiar with the situation, LIC’s property holdings were internally valued at $5.8 billion in
March 2020, though it’s unclear whether this was adjusted to current market rates.
According to people familiar with the situation, LIC plans to file a draught IPO prospectus in the last week of January. Which will include the embedded value as well as the number of shares for sale.
“The due internal valuation, which is required to be done almost annually by a company of that size. It hasn’t been done,” India’s finance minister, Nirmala Sitharaman, said in an October interview with Bloomberg.
“All of the essentials of keeping valuations in tip-top shape As well as the efforts required to keep the valued correctly — are being completed right now.”
The listing has a March deadline set by Sitharaman. LIC would compete against India’s largest companies, Reliance Industries Ltd. and Tata Consultancy Services Ltd. If investors agree to the government’s $203 billion valuations.
The IPO would cover the majority of India’s $23.5 billion asset-sale targets, which is needed to plug the country’s widening budget deficit, which is expected to reach 6.8% this year.
Investors are looking for answers.
Another difficulty is persuading foreign investors that LIC will deliver on its promises. According to people familiar with the matter, ten bankers in charge of the listing spoke with almost every large fund that might be interested in buying shares, including GIC Re, Canada Pension Plan Investment Board, Blackrock Inc., and Abu Dhabi Investment Authority.
Many of Mumbai’s international investors wanted to know if the listing would give LIC more autonomy from the Indian government. The people said they were initially skeptical, noting that the company has the appearance of a slow-moving arm of the establishment.
When you take away the prestige of delivering what would be India’s largest share sale in an already hot market, the actual earnings from the LIC transaction would be minuscule, according to some of the people.
Requests for comment from GIC and Blackrock were not returned. The CPPIB and the Abu Dhabi Investment Authority did not respond to requests for comment. LIC, on the other hand, could be a good bet for wealthy investors who don’t have many options after China’s technology restrictions last year.
With two-thirds of India’s insurance market share, the company has one of the highest assets under the management of any insurer in the world.
In addition, LIC has a sovereign guarantee on all payment liabilities, which allows it to operate with a lower capital base than its competitors. With a potential valuation four times that of AIG, the company could appeal to investors looking for high returns and security. “Not only is the Life Insurance Corporation’s IPO an excellent development for India’s capital markets, but it is also an excellent development for India’s economic growth,” said Mark Mobius, founder of Mobius Capital Partners LLC and a veteran emerging-markets investor.
According to him, listing large state-owned enterprises such as LIC results in “an expanded market capitalization of the Indian market generally with greater liquidity, making it attractive to large
investors such as pension funds and endowments not only in India but also abroad.”
Last year was a banner year for IPOs in India, and LIC’s strong debut would only add to that momentum. Even with mixed results from some of the more hyped entries, such as Paytm, a digital payments service, and Zomato, a food delivery startup, listings raised around $18 billion in2021.
An All-India Hault
India’s tangled bureaucracy has turned into a pressure cooker as the deadline approaches. When New Delhi’s power grid goes down, officials from the Department of Disinvestment work all night, double-checking hundreds of filings and opening their doors to let in the weak winter sunlight.
Vacations to the Himalayas and the Maldives are keeping bankers busy. Birthdays are being missed weekends are being sacrificed, and executives are working through illnesses, according to LIC executives.
Rural Indians are scrambling to ensure that they are eligible for a slice of the pie.
“It’s best to be prepared in life,” LIC has begun sending SMS blasts to its agents and running newspaper ads with the headline “It’s best to be prepared in life.”
A friend informed Raj Kumar Shukla, a marketing manager from Kiraoli, a village in northern India, about the IPO, prompting him to download an app to track stock indexes. He put aside 50,000 rupees (approximately $670) and opened a Demat account to invest in LIC.
“This listing will benefit the government,” he said. “They can put the money towards the country’s development.” The disinvestment drive has been framed differently by Modi’s critics. The IPO, according to Anshul Avijit, a national spokesperson for India’s largest opposition party, the Indian National Congress, amounts to “handing over our critical resources, slowly and gradually, to a few select private hands.”
He dubbed the bill “anti-poor.” However, unlike Saudi Arabia’s Aramco IPO in 2019, when the kingdom learned on wealthy citizens to buy the stock after global funds balked at the kingdom’s high initial valuation, Modi’s government has lobbied for a different approach, offering up to 10% of LIC’s IPO shares to policyholders across the country.
Giving ordinary Indians a stake in LIC could provide political ammunition ahead of next month’s regional elections. Many policymakers are dispersed across northern India, where the ruling Bharatiya Janata Party is hoping to maintain power.
“The Prime Minister has always said that the government has no business being in business,” Gopal Krishna Agarwal, a B.J.P. national spokesperson, said. “We believe in the free market economy as a party and as an ideology.” It’s anyone’s guess whether all of the pieces will come together.
However, the potential rewards are numerous:
Individual investors, such as teachers, small business owners, and parents saving for their children’s college funds, could raise nearly half of the IPO’s funds. A homegrown brand that has long been recognized across India, from mountainous Kashmir to villages in the Andaman Islands, could soon have global clout.
