December 9, 2022

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India’s Rush To List LIC Is A mistake In Making

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MUMBAI, Feb 4 (Reuters Breakingviews) – There are many ways to bungle an initial public offering. Indian Prime Minister Narendra Modi is tempting fate by rushing the market debut of Life Insurance Corp of India read more .

New Delhi wants to bag proceeds from selling a stake in the company before the fiscal year ends within two months. Finance minister Nirmala Sitharaman underscored the preferred March 31 deadline after presenting the country’s budget this week.

MUMBAI, Feb 4 (Reuters Breakingviews) – There are many ways to bungle an initial public offering. Indian Prime Minister Narendra Modi is tempting fate by rushing the market debut of Life Insurance Corp of India read more .

New Delhi wants to bag proceeds from selling a stake in the company before the fiscal year ends within two months. Finance minister Nirmala Sitharaman underscored the preferred March 31 deadline after presenting the country’s budget this week.

If India sells 5% of LIC at a market valuation of almost $230 billion, the government would collect over $11 billion. That assumes its $67 billion embedded value, a hotly anticipated number exclusively reported by Reuters read more on Thursday, can command the same multiple of top state-backed peer SBI Life (SBIL.NS). Proceeds would be four times as much as the record deal in November from Paytm owner One97 Communications (PAYT.NS) and the windfall would help India hit its target for asset sales and its already uncomfortable 6.9% fiscal deficit.

The final multiple investors assign to LIC will depend on other details revealed in the draft prospectus, which LIC is preparing to release. Yet recent large debutantes, including Paytm and Nykaa beauty retailer FSN E-Commerce Ventures (FSNE.NS), took four months and three months, respectively, from releasing the first public documents to closing the books on their stock sales. Both have simpler businesses to understand. LIC, by contrast, manages $500 billion of investments as the country’s largest institutional stockholder, and the quality of its book is a mystery given its role mopping up the state’s unwanted assets.

Moving too quickly increases the danger that the deal gets mispriced. Volatile trading would be a rude introduction to the stock market for LIC’s 290 million-odd policyholders, who are being encouraged to subscribe and many of whom will be first-time share buyers. Paytm took greater care, and its stock price has more than halved since the IPO.

Another big risk is a lacklustre appetite from the overseas fund managers whose support is needed to underpin the ambitious listing. Delaying it would widen the deficit and reinforce a perception that New Delhi routinely misses targets. In the end, debt investors dictating borrowing costs probably would give India a little leeway. If Modi can get the deal done on time that will be remarkable, but haste often makes waste.

– The planned initial public offering of Life Insurance Corp of India will go through in the current fiscal year, Finance minister Nirmala Sitharaman told reporters on Feb. 1 at a press conference after unveiling the country’s budget. It effectively sets a March 31 deadline.

– The embedded value of LIC has been finalised at more than 5 trillion rupees ($66.8 billion), Reuters exclusively reported on Feb. 3, citing a government official who is overseeing what is expected to be the country’s largest IPO.

– Embedded value is a measure of the value to shareholders of business on the company’s books plus adjusted net worth.

– The company is expected to file its draft prospectus in a matter of days, Reuters added.

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