The government is likely to call on the timing of the LIC’s IPO within this week, a senior official said.
The sale of 5 percent or 31.6 crore shares in the country’s largest insurer was originally scheduled for March but was postponed due to geopolitical tensions.
The government has until May 12 to launch the IPO without filing any new papers with the market regulator Securities and Exchange Board of India (SEBI).
The official said it would be a difficult decision to decide whether to proceed with demand from private and domestic investors or wait for geopolitical tensions to ease and FIIs return to the market.
“A decision on the timing of the IPO would be made this week,” the official said.
The embedded value of LIC, which is a measure of consolidated shareholder value in an insurance company, was set at approximately Rs 5.4 lakh crore on September 30, 2021 by the international actuarial firm Milliman Advisors.
In certain quarters, estimates were made that the market value of LIC would be approximately 2-3 times the embedded value. The official said that for a company of LIC’s size, such a high multiplier to embedded value may not be correct.
The official further said that the IPO price should be set in such a way that there is a benefit to the stock on the trading day and that investors are rewarded.
“LIC is already a mature company and has seen business growth since its inception. The market valuation should be done taking into account the growth potential here,” the official added.
If the IPO does not launch now, it would have to be postponed to August or September as new papers with updated quarterly results and valuations must be submitted to SEBI.
If the government decides to go ahead with the IPO by May 12, the life insurer must submit the red herring prospectus to SEBI next week.
The official also said that under current market conditions, the government is unlikely to divest more than 5 percent of its shares in the life insurance giant. “If we already have headwinds, we won’t be able to test waters with a higher IPO size.” The Treasury Department did not respond to the email asking for comment on the story.
The government plans to sell about 31.6 crore or 5 percent of the shares in the life insurance giant.
The IPO of LIC would contribute an important part of the budgeted divestment proceeds in the current financial year. The government has committed divestment receipts at Rs 65,000 crore for 2022-23, up from Rs 13,531 crore last fiscal year.