The government is very interested, but some regulators are raising concerns about the timing of LIC’s IPO
Even while the Department of Investment and Public Asset Management (DIPAM) has learned that it is keen to launch the LIC IPO in March 2022 to meet its revised fiscal year divestment target, some key officials from the The regulatory sector has spoken out against the move, citing a low percentage of policyholders who have linked a PAN to their policies and an even lower number of Demat accounts. There are also fresh concerns about the geopolitical developments in Russia-Ukraine and their impact on the markets, the FPI outflow in recent months, the volatility in the markets and March not being a suitable month for a large public issuance.
At least two key officials said the timing for LIC’s IPO could be inopportune due to several factors.
“The main concern is for policyholders. While there are nearly 30 million LIC policyholders, fewer than 4 million have their PAN linked to their policies. Even lower numbers have demat accounts. Although LIC has been pushing its policyholders to link their PAN to their policies and policyholders to open Demat accounts, we’re not sure enough has happened on that front,” a source said. He added that the current market volatility also doesn’t bode well for a large issue.
Another official, who declined to be named, cited the general weakness in the market and the sharp outflow of FPIs as another reason for not coming out with LIC’s IPO now. In the past two months, FPIs have pulled out a net of over Rs 64,461 crore. “March is generally not a good time for a large issue as companies have to file their tax prepayments and as a result liquidity in the market is low. Even though the market has been weak in recent months and FPIs have been pulling large sums of money out of Indian stocks, recent geopolitical concerns are fueling renewed concern,” he said.
He added that if you come into a choppy market with a big theme, “not only do you run the risk of a signing, but you aren’t able to get a good price or premium, and therefore you would lose your returns.” to decrease. You shouldn’t go public just because you want to hit your divestment goal for the year. I don’t think that would be the right choice,” the official said.
LIC is expected to raise around Rs 60,000 crore from its public offering. Last week, LIC Chairman MR Kumar expressed his willingness to launch the IPO himself in the current fiscal year. “We are monitoring geopolitical developments very closely. We are excited for the March listing,” Kumar said last week, referring to market volatility and developments in Ukraine.
However, the final decision to launch the IPO will be made by the government in consultation with the investment bankers and LIC. On February 24, the Sensex plunged 4.7 percent (2,702 points) as Russia invaded Ukraine, but partially recovered 2.44 percent (1,329 points) the next day. As markets are expected to remain volatile in the coming days, any further sharp decline could impact IPO prices.
Meanwhile, government agencies and other stakeholders have been preparing the groundwork for the public release, which is due to launch in March.
On Thursday the index maintenance sub-committee of NSE Indices Ltd decided to relax the eligibility criteria of Nifty equity indices, reducing the minimum constituent listing history from three months to one calendar month. While the changes will take effect from March 31, market sources say the easing will pave the way for Life Insurance Corporation (LIC), which plans to list its shares in March, to be included after a month in the benchmark Nifty index 50 pave will listing.
In a further move, the union cabinet on Saturday approved an FDI policy change to allow foreign direct investment (FDI) up to 20 percent through the “automatic route” into the state life insurance company. “The FDI policy change is enough to ease foreign investment in LICs by up to 20 percent,” said one government official, noting that an amendment to the LIC 1956 Act was not required. According to the offer document, up to 50 percent of the IPO will be allocated to qualified institutional investors (QIBs). It has allocated 5 percent of the offering to employees, 10 percent to eligible policyholders and 35 percent to individual investors (RIBs).
Bankers expect a good response from QIBs and retail investors. Investment banking sources said that once Sebi approves the offering in the coming days, the IPO will open for subscription in the second week of March and trading will begin in the third week of March 2022, according to the current plan.