The Life Insurance Corporation of India’s (LIC) massive initial public offering (IPO), which was postponed by a few months due to turbulent market circumstances and geopolitical tension, maybe listed shortly. The IPO was initially scheduled for March (the previous financial year).
According to a PTI report, the federal government is expected to decide on the date of the LIC’s public listing this week, according to a senior official.
“A decision on the date of the IPO will be made this week,” the official said, according to PTI.
The government intends to sell a 5% interest, or 31.6 crore shares, in the country’s largest insurer. The government has until May 12 to launch the IPO without having to file new paperwork with the capital markets regulator, Sebi.
According to the official, the government would have to make a difficult decision about whether to push forward with retail and local investor demand or wait for geopolitical tensions to calm and FIIs to return to the market.
According to specialists, the administration can choose between two options.
If the government does not launch the IPO by May 12, the filing would have to be postponed until September since new documents with updated quarterly results and values will have to be submitted with the Sebi anew.
If the government chooses to proceed with the LIC IPO by May 12, the insurer must file the red herring prospectus with the Sebi by the following week.
Given the current market conditions, the government is unlikely to sell more than 5% of its interest in the LIC. “We cannot test the waters with a larger IPO size when we are already facing headwinds,” he remarked.
Milliman Advisors, an international actuarial consultancy, estimated the LIC’s embedded value to reach Rs 5.4 lakh crore as of September 30, 2021.
Let’s know about embedded value?
In the life insurance sector, embedded value is a popular valuation metric used to evaluate the consolidated worth of shareholders’ interests.
According to estimates from various sources, the LIC’s market value would be 2-3 times its embedded worth. Such a high multiplier to embedded value for a corporation of the scale of LIC may not be proper, according to the official, who added that the IPO price would have to be set in such a manner that there is an upside to the stock on the listing day and investors are rewarded.
According to sources, the listing of the LIC is a significant component of the Centre’s ambitions to liquidate state assets to pay a massive budget deficit. The government expects disinvestment receipts to reach Rs 65,000 crore in 2022-23, up from Rs 13,531 crore in the previous fiscal year.