The Economic Times daily newspaper is available online now.

    Fit to wear (& tear)LIC's IPO refitting

    Synopsis

    The LIC IPO size has been reduced on an understanding that market conditions are unlikely to improve in the near term.

    1
    LIC's listing, initially scheduled for the previous fiscal year, was pushed back by the Covid pandemic.
    The government has trimmed the size of the initial public offering (IPO) of Life Insurance Corporation (LIC) of India after anchor investors found the original valuation rich during war and capital flight from emerging economies. The insurer now proposes to offer 3.5% of its stock for ₹21,000 crore. This values the insurer at ₹6 lakh crore, at 1.1 times its embedded value, or the sum of its net assets and future profits. Earlier plans to sell 5% of LIC's stock for around ₹63,000 crore in what would have been the country's biggest IPO appear a bit too ambitious in the current market conditions. The shrunken issue will require an exemption from the Securities and Exchange Board of India (Sebi) that requires companies valued above Rs1 lakh crore post-listing to float a minimum 5% stake.

    LIC's listing, initially scheduled for the previous fiscal year, was pushed back by the Covid pandemic. GoI missed its revised disinvestment target for 2021-22, which was slashed from ₹1.75 lakh crore to ₹78,000 crore. The actual collection was ₹13,530 crore, of which ₹2,700 crore came in through the sale of Air India to the Tata Group. Original plans to sell stakes in Bharat Petroleum Corporation Limited (BPCL) and Shipping Corporation of India (SCI) had to be delayed. With receipts missing vastly reduced, revised estimates in two of the four preceding years, the disinvestment target for the current fiscal year has been set more prudently at ₹65,000 crore, and the LIC IPO could have helped meet most of it. With a smaller LIC issue, disinvestment of other state-run companies may regain traction.

    The LIC IPO size has been reduced on an understanding that market conditions are unlikely to improve in the near term. This is a reasonable assumption. These market conditions will apply to divestment overall. Sell-off proceeds were more than offset by tax buoyancy in 2021-22. The situation has altered significantly since then. Growth is less certain and energy prices are likely to remain volatile. So, the revised IPO size is quite pragmatic.

    The Economic Times

    Stories you might be interested in