LIC may need to be revalued if the listing is pushed beyond May

The government may have to rework the valuation of Life Insurance Corporation of India (LIC) for its initial public offering (IPO) if the listing is pushed beyond May, an official said.

The current embedded value of LIC, pegged at Rs 5.4 trillion as of September 30 and for the six-month period ended September, will have to be re-evaluated if the issue is pushed beyond May 12, as approved by the Securities and Exchange Board of India (Sebi). This would impact the market value of LIC, that is currently being internally estimated at 3-4 times of the embedded value.

This would also require the government to seek fresh approval from Sebi for the life insurer’s IPO.

According to the government official, the Centre had earlier planned the mega IPO of LIC in the second week of March but the market volatility due to the Russia-Ukraine war has delayed proceedings. If the listing gets pushed beyond May 12, fresh papers would have to be filed, with updated valuation of the insurer. LIC had filed the draft red herring prospectus (DRHP) with Sebi on February 13, and the regulator had approved the same last week.

Based on the feedback received from the market regulator, and fulfilling certain requirements, the centre will soon file the red herring prospectus (RHP) for the issue. This will include the issue size of the sale along with pricing band.

The government is hopeful of bringing out India’s largest IPO before May.

The government is daily monitoring volatility in the market, and is assessing the situation, the official said. The India VIX index has dropped to 25 now after touching a high of 32 at the end of February, indicating high volatility in the market. This is as against the index’s normal range of 14-15. The decision to launch the issue would be taken once volatility in the market normalises.

The political executive or the group of ministers has assigned the responsibility on the Department of Investment and Public Asset Management (Dipam) officials to decide on the timing of the issue in consultation with investors and merchant bankers.

The official said that the response from the investors as well as merchant bankers has been to not rush through the IPO just keeping a deadline of March 31 in mind, the official said.

The Centre is looking to sell 5 per cent or 316 million of its shares in LIC through the IPO. The market is expecting the size of the issue to be about Rs 60,000-65,000 crore valuing the insurer around Rs 13 trillion. However, the valuation of the insurer would only be clear once the government files RHP.

Uncertain future

• The government may have to seek fresh approval for the IPO
• Listing after May 12 may require re-evaluation of embedded value, updated financials
• Embedded value has been estimated at Rs 5.4 trillion as of September 30, and for the six-month period ended September 2021
• The Centre likely to launch the issue when volatility normalises