India’s largest initial public offering will test the appetite of foreign investors


The LIC logo looms over a couple of passersby in Mumbai, India, last week. The initial public offering of the largest life insurance payer in the country is expected to fetch $2.7 billion in the nation’s largest initial public offering yet.

Punit Paranjpe | Afp | fake images

The dominant player in India’s life insurance market, Life Insurance Corporation, opens its underwriting initial public offering on Wednesday in the largest IPO in the country’s history.

The government is selling a 3.5% stake in state-owned insurance giant LIC for an estimated value of $2.74 billion. The corporation will offer around 22.13 million shares for between 902 and 949 Indian rupees, or the equivalent of $11.78 to $12.39 per share at Tuesday’s exchange rate.

Trusted by millions and with a huge reach across the country, LIC is second only to bank deposits as a safe haven in India. Between 2019 and 2021 the participation of LIC in the financial savings of households grew 3.4 percentage points to 19.4%. That exceeds the 16.7% share of pension funds, while bank deposits fell 7.1 percentage points to 29.4% during the same period.

SCI had a monopoly in the Indian insurance market until 2000 and it remains the dominant player, commanding roughly two-thirds of the life insurance market. In the fiscal year ending March 2021, LIC’s market share stood at 64.14%, slightly below 66.22% in the previous year.

IPO time

There is no perfect time for an IPO. Given the high liquidity in international markets, this is as good a time as any.

Arvind Virmani

Former Chief Economic Adviser to the Government of India

The company’s current implied valuation of $80 billion is about half what it was in February, falling at least in part due to market conditions. It had previously planned to offer a 5% stake for about $8 billion.

Speaking to CNBC, India’s former chief economic adviser, Arvind Virmani, dismissed talk of poor IPO timing.

“There is no perfect time for an IPO. Given the high liquidity in international markets, it is as good a time as any,” he said.

foreign investors

The complexity and scale of LIC’s initial public offering signal the government’s intention to go one step further than previous governments.

Suyash Rai

Deputy Director and Fellow, Carnegie India

Speaking to CNBC, Carnegie India Deputy Director Suyash Rai said that LIC’s initial public offering provides domestic and foreign investors with the opportunity to invest in a company that controls roughly two-thirds of the life insurance market in India. He said that while the listing is a “continuation of a decades-long policy of listing public sector finance companies,” LIC still stands out.

“The complexity and scale of LIC’s initial public offering signal the government’s intention to go one step further than previous governments,” Rai said.

As a sign of its commitment to reforms in the financial sector, last year the government raised foreign capital in insurance from 49% to 74%.

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Reference-www.cnbc.com

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