India has downsized its insurance giant’s gigantic IPO

India has downsized its insurance giant’s gigantic IPO
Image: REUTERS/Francis Mascarenhas
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India is doing all it can to make the initial public offer (IPO) of the country’s insurance behemoth Life Insurance Corporation of India (LIC) a success. But the headwinds seem simply too strong.

Following various regulatory tweaks, the IPO has been trimmed to 221.4 million shares as the Ukraine war dampens investor demand. This is equivalent to a mere 3.5% stake in the company, compared to the 5% planned earlier.

LIC hopes to raise $2.7 billion (20,684 crore rupees) when the IPO opens next week at the top end of the price range of 902-949 rupees per share, according to a revised IPO prospectus. This is a third of what was hoped for in February.

These changes followed growth concerns flagged by big investors as LIC’s market share has been shrinking.

India’s fiscal hopes are pinned to LIC IPO

From the Indian government’s perspective, the listing must necessarily succeed. After all, its proceeds of around Rs21,000 crore will help plug the country’s budget deficit, worsened by rising fuel costs.

The government had set an overall disinvestment target of Rs65,000 crore for this financial year. That now seems far fetched given the resized plan for LIC.

The IPO has been delayed twice, first due to the covid-19-led pandemic and then the Ukraine war. Not that the timing is right this time either. It comes amid continued risk aversion across the world. Foreign money has been fleeing emerging markets like India in recent weeks.

LIC may not become a part of stock indices

Despite it being India‘s biggest-ever IPO, LIC may not be included in marquee global indices like MSCI and FTSE since the government is diluting a measly 3.5% of its holding.

An inclusion in domestic benchmarks, Nifty50 and Sensex, is also doubtful. For a company to enter Sensex, BSE’s benchmark index, it must rank among the top-10 in terms of free-float market cap—the equity shares available for trading freely on bourses. LIC is unlikely to pass muster.