LIC IPO: DRHP unlikely to reveal size of IPO; Board to meet again on Sunday

LIC IPO: After approval from the insurance regulator, the draft will be checked again and placed before the LIC board on Sunday

The draft red herring prospectus (DRHP) for the initial public offering (IPO) of Life Insurance Corporation of India (LIC) may just specify the dilution of the government’s 5 per cent equity in the insurer and is unlikely to mention the issue size because there haven’t been enough consultations on its valuation with potential investors, officials in the know said.

“If there would have been a fresh issue of shares, and the raising of fresh capital by LIC, the issue size would have been specified. But this is an offer for sale as the government is selling its shares in the insurer,” an official said, adding that the valuation would depend on the market demand and other conditions.

The government has not held adequate consultations with investors, so it would not be possible and correct to seek any specific valuation, the official said. Even as the embedded value (EV) of LIC has been decided at over ~5 trillion, the valuation that the government is seeking (a multiple of EV) will be finalised following road shows after gauging investor interest, he said.

“The price of shares is not known now and will be decided only post consultations with investors. The DRHP will only specify that the government is selling its 5 per cent shares,” he said. Based on the shareholding pattern of the insurer as on December 31, 2021, 5 per cent equity would be around 316 million shares. 

As no price discovery for shares has been done through pre-IPO placement, it will be difficult to justify any valuation for the insurer at the moment, said another official.

On Friday, the LIC board approved the IPO. Now the proposal has been sent to the Insurance Regulatory and Development Authority of India (Irdai), the official said. After approval from the insurance regulator, the draft will be checked again and placed before the LIC board on Sunday. After the board approval, the DRHP will be filed with the Securities and Exchange Board of India on Sunday or Monday.

Two sets of approvals are needed from the regulator -- one for the IPO and another for the DRHP, he added.

Once the DRHP is filed, the government is hopeful of swift approvals from the markets regulator as parallel consultations with Sebi have been ongoing. A working group has been constituted to check the technology readiness level as the IPO is expected to receive massive investor response. The working group has been undertaking scale testing as millions of applications are anticipated, and thorough testing is required to avoid glitches in the application process and movement of funds, Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey had told Business Standard last week.

The government has reserved 10 per cent of the issue size for policyholders, and may even offer them shares at a discount.