For LIC IPO, govt may ask regulators to ease new norms on investments

May ask Sebi and RBI for relaxing rules regarding anchor lock-in, Rs 1-crore cap on IPO financing

The government is likely to seek a special dispensation from the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) on the applicability of the recently introduced — and yet-to-be-tested — norms regarding anchor investors’ lock-in period and caps on high networth individual (HNI) funding for the initial public offering (IPO) of Life Insurance Corporation of India (LIC), said people in the know.

With effect from April 1, 2022, the 30-day lock-in period has been extended to 90 days for 50 per cent of those applying under the anchor investors category. Meanwhile, the RBI has imposed a cap of Rs 1 crore on IPO funding by non-banking financial companies (NBFCs). LIC’s IPO is likely to be the first major share sale to test these new norms.

“We want the government to ask Sebi and the RBI to relax the new anchor lock-in requirements. Also, a relaxation in the Rs 1-crore cap on IPO funding will be helpful. As the IPO is taking place against a highly volatile backdrop, it is better that the new norms are not tested on an IPO like LIC,” said an investment banker handling the issue. The government could make a formal plea in this regard soon, he added.

Under the earlier norms, anchor investors were barred from selling their shares for 30 days from the date of allotment. In an order to draw greater commitment and boost investor confidence, Sebi has now mandated that the lock-in period will be 90 days for 50 per cent of the anchor investors and 30 days for the remaining half. LIC’s anchor book is expected to be the biggest ever for any domestic IPO.

BlackRock, Abu Dhabi Investment Authority, Singapore’s GIC, Canada’s CPPIB, Fidelity, and Capital International are some of the marquee investors that are likely to invest in the IPO under the anchor category. Besides, all leading mutual funds (MFs), such as SBI MF, Aditya Birla Sun Life MF, ICICI Prudential MF, and HDFC MF, could also participate.

“While most anchor investors come in for the long haul, it is better if the status quo is maintained when it comes to the anchor lock-in. Already, investor sentiment has turned fragile given the US Federal Reserve’s hawkish pivot,” said an investment banker.

The real challenge for the LIC IPO is generating enough demand from institutional investors and HNIs. Good demand in these two categories will bolster retail investors' participation. Bankers said several retail investors and LIC policyholders are eagerly waiting for the IPO.

“Given the large IPO size, bankers are not expecting HNIs to borrow heavily to invest in the LIC IPO. However, doing away with the Rs 1-crore cap will help NBFCs create the right buzz around the IPO,” said another banker. 

LIC was expected to announce its IPO price band this week. However, given the latest bout of volatility, there could be some change in the timelines. The government is said to have brought down the valuation of LIC to align with the change in market conditions.