Will the Current IPO Improve LIC’s Governance?

| Updated: May 4, 2022 3:50 pm

With demand building up, the LIC IPO, which opened for subscription today, is likely to be oversubscribed, which means it will be listed at a premium to the issue price. Whether the scrip will stay above the issue price in the medium term will depend on LIC’s results over the next few quarters.

Deepak Jasani, Head, Retail Research, HDFC Securities, feels there will be a qualitative change in LIC’s governance practices after the IPO. “We have seen public sector undertakings become much more investor friendly once they are listed. Government interference diminishes and maintaining the share price becomes an important measure of performance. LIC’s growth has been slow in the past. We would expect this to improve after the IPO.Minority shareholders can also expect good dividends from LIC, since that is what the government would want,” he said while addressing a webinar on Tuesday.

In the past, the government has had occasion to use LIC for partisan ends. For example, LIC has taken a 49% stake in IDBI Bank at the government’s behest, which is now classified as a ‘risk factor’ since it may require infusion of additional capital from LIC. Post the IPO, the government may find it harder to push such deals. LIC is heavily dependent on its agents, with 94% of its business coming through this route. Private insurance companies, on the other hand, get most of their business from bancassurance (insurance sold through banks). LIC also has a limited digital presence compared to its private sector rivals. This too is set to change after the IPO.

Jasani said the LIC IPO is competitively priced and the current grey market premium of Rs 80 indicates it will debut on the bourses at a premium to the issue price. At 1 pm on Wednesday, LIC’s policyholders had fully subscribed to the shares reserved for them and PIC employees had subscribed to 53% of the shares reserved for them. Retail investors had subscribed to 34% of the shares reserved for them. Jasani said that a policyholder can also apply under the retail category to increase chances of a higher allotment. “Those applying in the retail category have a greater chance of getting an allotment,” he said.

The government, which owns 100% of LIC, is currently offloading only 3.5% of its stake. The stake sale is expected to increase to 10% in two years and 25% in five years. The sale price in the next tranche of shares will depend on how the scrip performs in the market in the coming year.

Also Read: LIC IPO Sees Strong Participation From Anchor Investors; Key Things To Know

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