LIC OFS ends with retail portion undersubscribed, institutions drive demand

Retail investors bid for only 69% of the shares reserved for them, even as institutional interest prompted the government to increase the offer size

Retail demand for India's stake sale in Life Insurance Corp. lagged institutional interest, leaving the individual investor portion undersubscribed after the government increased the offering's size to $3.3 billion. 

The two-day offer-for-sale, which closed Wednesday, attracted bids for about 69% of the shares set aside for retail investors, according to BSE Ltd. data. The category placed bids for about 57.1 million shares, compared with 82.2 million shares reserved for retail investors.

  This contrasts with robust institutional demand Tuesday, which prompted the government to increase the size of the sale to 6.5% from the initially planned 2.5%. That makes the transaction India's largest secondary share sale conducted through a stock exchange platform and the second-largest equity fundraise.

 

  LIC shares closed a tad higher on Wednesday after tumbling nearly 9% in the previous session. 

  Secondary share sales in India have seen mixed participation from mom and pop investors, some of whom avoid big offerings in favor of purchasing stocks later in the open market when prices fall below the offer price. Some recent offers, including those by Coal India Ltd. and NHPC Ltd., were oversubscribed, while others, such as NLC India Ltd.'s, struggled to attract retail investors.

  The government offered a 10-rupee discount for retail investors on the final allotment price. This provided some investors an arbitrage opportunity as LIC's shares closed at almost 3% premium over the floor price of 382 rupees.

  While the insurer is profitable and continues to pay dividends, its shares trade at about 17% discount to their 2022 IPO price, adjusted for stock splits. They have trailed the Nifty 50 index, which rose about 55% over the same period.

  "Since the stock is quite beaten down, it could generate decent returns over a three-five year horizon," said G Chokkalingam, founder of Mumbai-based portfolio firm Equinomics Research & Advisory Pvt.

  The stock can potentially attract inflows of about $768 million from passive investors over the next seven months, according to Brian Freitas, an analyst at Periscope Analytics. The government's stake reduction could pave the way for the stock's inclusion in some global equity indexes, he said in a note.

  Despite trading below their IPO price, LIC shares continue to enjoy strong backing from analysts, with 85% of brokers covering the stock maintaining buy ratings and implying nearly 40% upside over the next 12 months.