LIC IPO: Govt likely to sell 5.5-6% stake

The Centre will likely offer to sell a 5.5-6% stake in the final offer document for the mega IPO of Life Insurance Corporation (LIC), instead of 5% indicated earlier, a senior official told FE. The issue is likely to hit the market in “two to three weeks”, he added.

With the stock market stabilising and foreign investors shedding their post Ukraine-Russia conflict fears, the government is optimistic that the transaction will sail through smoothly in April, as they there is a lot of appetite for the insurance behemoth among institutional and retail investors, the official said.

With the embedded value (EV) of LIC estimated Rs 5.4 trillion, a 5.5-6% stake could fetch the Centre Rs 70,000-80,000 crore as against the full FY23 modest disinvestment revenue target of Rs 65,000 crore.

Merchant bankers to the IPO have been asked to get quotes from potential anchor investors including sovereign wealth funds with regard to how much they are willing invest in the IPO and at what price in a week’s time, another official said. A pre-IPO placement of shares will be done in favour of anchor investors before the IPO opens for public subscription, setting the stage for pricing of the issue.

The market volatility after the outbreak of the Ukraine-Russia war had forced the government to review the proposed LIC IPO’s earlier scheduled for March, on concerns that foreign investors and retail investors may stay away from the issue.
According to market regulator Sebi’s norm, a company can enhance offer size by 50% in the final offer stage vis-a-vis the indicated issue size in the draft prospectus.

The 30-share BSE Sensex darted up 1,335.05 points, or 2.25%, to close at an over two-month high of 60,611.74, almost near to the lifetime high of 61,765.59 reached on October 18, 2021.

“The issue size may be increased from 5% to 5.5-6% even though we have the scope to raise it to 7.5%. We want to be a little conservative,” the official said.

LIC has reserved 50% of the net offer for qualified institutional buyers or QIBs, 15% for non-institutional bidders and 35% for retail individual bidders in accordance with the Sebi regulations. Foreign institutional investors would come in the QIB portion. According to norms, about 60% of the QIB portion can be allocated to anchor investors, giving confidence to retail and other investors to participate in the issue.

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