An official said the government may have to rethink the valuation of Life Insurance Corporation of India (LIC) for its initial public offering (IPO) if the listing is delayed beyond May. If the offer is delayed beyond May 12, as allowed by the Securities and Exchange Board of India, the present embedded value of LIC, set at Rs 5.4 trillion as of September 30 and for the six-month period ending September, would have to be re-evaluated (SEBI).
This would have an influence on the market value of LIC, which is now estimated to be 3-4 times the embedded value.This would also necessitate the government seeking new SEBI approval for the life insurer’s IPO.
According to a government official, the Center had planned to launch the major IPO of LIC in the second week of March, but market volatility caused by the Russia-Ukraine conflict has caused the process to be postponed.
If the listing is delayed through May 12, new papers must be filed, along with an updated valuation of the insurer. On February 13, LIC submitted a draft red herring prospectus (DRHP) with SEBI, which the regulator authorized last week.
The center will soon file the red herring prospectus (RHP) for the offering based on feedback from the market regulator and compliance with certain standards.This will include the sale’s issue size as well as the pricing band.The government is hoping to launch India’s largest initial public offering (IPO) before May.
According to the official, the government monitors market volatility on a regular basis and assesses the situation.The India VIX index has now declined to 25 after reaching a high of 32 at the end of February, signifying extreme market volatility.This compares to the index’s usual range of 14-15.The decision to launch the issuance would be made once market volatility had subsided.
The political executive or group of ministers has tasked officials from the Department of Investment and Public Asset Management (Dipam) with determining the timeliness of the problem in conjunction with investors and merchant bankers.
According to the official, the attitude from investors and merchant bankers has been to not rush through the IPO with only a March 31 deadline in mind.The Centre intends to sell 5% of its LIC shares, or 316 million shares, through the IPO.The market expects the offer to be worth roughly Rs 60,000-65,000 crore, valuing the insurance at around Rs 13 trillion.However, the insurer’s valuation would not be known until the government filed RHP.