LIC IPO: How Modi government is preparing for India’s Aramco moment

For nearly two years, India has braced itself for a colossal task: building the country’s leading insurer – with assets of nearly $500 billion and an estimated valuation of $203 billion – to become the largest stock market ever. List can be made. Some bankers have described the public offering as life insurance corporation, of India, or LIC, as the Aramco moment of India. With the $29.4 billion listing of the Gulf oil giant, the world’s largest, the launch of LIC will test the depth of the country’s capital markets and the global appetite for its state-owned Crown Jewel.

Success is far from sure. With almost two months to go for the targeted launch, advisors are pouring over a plethora of policy documents to come up with LIC’s embedded value – a key valuation metric. Bankers say global investors are concerned about the autonomy of an institution that is routinely put into service to protect banks and protect state assets. Local investors are skeptical that the 65-year-old firm can compete against up-and-comers.

A knock-out listing could see LIC raising up to $10 billion with dilution of at least 5% from the IPO. This will make it the third largest insurance company globally. More importantly, it will burn Prime Minister Narendra Modi’s reputation as a market-oriented reformer ahead of key state elections and help reduce the budget deficit.

Having been investing in emerging markets for a few decades, Beeland Interests Inc. And James Beeland Rogers, president of Rogers Holdings, said, “If the listing happens, it could change India’s global image.”

shape into a giant

LIC is a household name in India. With 2,000 branches, over 100,000 employees and 286 million policies, the Mumbai-headquartered company reaches practically every corner of the country. The sheer size of LIC highlights the challenges of listing the black box effectively.

The insurer only issues its balance sheet once a year, which means there are no publicly available numbers to figure out its embedded value, which combines the present value of future profits with the net value of assets. Milliman and Ernst & Young executives overseeing the evaluation must sift through a plethora of policies for broad parameters such as mortality, morbidity, omission and surrender.

Difficult to compare with peers. LIC, which was set up in 1956, follows the rules laid down by a unique parliamentary act rather than a law governing other insurance firms in the country. According to a person with knowledge of the matter, as of March 2020, the intrinsic value of LIC’s assets was around $5.8 billion, though it is not clear whether all this was adjusted against current market rates.

LIC plans to file the draft IPO prospectus in the last week of January, which will provide the embedded value as well as the number of shares for sale, according to people with knowledge of the matter.

“The proper internal assessment, which needs to be done, you would be considered almost annually by a company of that size, has not been done,” India’s Finance Minister Nirmala Sitharaman said in an interview with Bloomberg in October. Keeping assessments elementary and fair – and the effort needed to keep them properly evaluated – is now being done.”

Sitharaman has set March deadline for listing. If investors agree to the $203 billion valuation sought by the government, LIC will compete against India’s biggest companies – Reliance Industries Ltd. and Tata Consultancy Services Ltd. That would be the bulk of the $23.5 billion asset-sale target needed to plug in the IPO. India’s rising budget deficit, which is estimated to be 6.8% this year.

LIC declined to comment.

Investors Want Answers

Another challenge is to convince foreign investors that LIC will work for them.

According to people familiar with the matter, the ten bankers managing the listing spoke with nearly all major funds interested in buying the shares, including GIC Re, Canada Pension Plan Investment Board, BlackRock Inc and Abu Dhabi Investment Authority.

Several global investors from Mumbai wanted to know whether LIC would get more autonomy from the Indian government after the listing. People said they were initially skeptical, noting that there are traces of a slow-moving branch of the company’s founding.

With each receiving at least Rs 10 million ($135,000) fee, the actual earnings from LIC transactions will be less if you take away the reputation of delivering the biggest share sales in India’s already red-hot market, of which Some people said.

GIC and BlackRock did not respond to requests for comment. The CPPIB and the Abu Dhabi Investment Authority declined to comment.

But for deep-pocketed investors who don’t have many places to park their money after China’s technology restrictions last year, LIC may still be a good bet. The company has the largest number of assets under management by an insurer globally, accounting for two-thirds of India’s insurance market share.

LIC also has a sovereign guarantee on all payment liabilities, which means it can operate with a thinner capital base than its competitors. With a valuation potentially four times higher than that of AIG, the company can appeal to investors for returns and safety.

“The IPO of Life Insurance Corporation is an outstanding development not only for India’s capital markets, but also for India’s economic growth,” said Mark Mobius, a seasoned investor in emerging markets and founder of Mobius Capital Partners LLC.

He added that listing of large-scale state-owned enterprises such as LIC would result in an “expanded market capitalization of the Indian market with generally greater liquidity, making it easier for large investors such as pension funds and endowments not only in India but abroad.” To be attractive.”

Last year was a bumper year for IPOs in India and a solid start by LIC will only build on that momentum. The listing raised nearly $18 billion in 2021, with mixed results from even some of the more hyped entries, which included Paytm, a digital payments service, and Zomato, a food delivery startup.

an all india heavy

As the deadline approaches, India’s labyrinthine bureaucratic has become a pressure cooker.

Department of Disinvestment officials are pulling all-nighters, re-examining hundreds of filings and opening their doors to let in the weak winter sun when New Delhi’s power grid wears out. The bankers are working through holiday trips in the Himalayas and Maldives. LIC officials said they are not celebrating birthdays, skipping weekends and battling ailments.

Indians in rural areas are running to ensure their eligibility to get a piece of the pie. LIC has started sending SMS blasts to its agents and started publishing newspaper advertisements with the headline: “It’s best to be prepared in life.”

Rajkumar Shukla, a marketing manager living in Kiravali, a village in northern India, said a friend alerted him about the IPO, which prompted him to download an app to track stock indexes. He saved Rs 50,000 (about $670) and opened a demat account so that he could invest in LIC.

“The government will benefit from this listing. They can use this money for the development of the country,” he said.

Modi’s critics have framed the disinvestment campaign differently. Anshul Avijit, the national spokesperson of the largest opposition party, the Indian National Congress, said in an interview that the IPO is a “slow and gradual handover of our vital resources to a select few private hands”. -Poor.”

But unlike Aramco’s 2019 IPO, when Saudi Arabia leaned on wealthy citizens to buy stocks as global funds balked at the kingdom’s high initial valuations, Modi’s government lobbied for a different approach: LIC’s IPO. Spread of 10% of the shares to the policy holders. across the country.

Offering common Indians a share in LIC could provide political ammunition ahead of the regional elections beginning next month. Many policy holders are scattered across northern India, where the ruling Bharatiya Janata Party hopes to seize power.

BJP national spokesperson Gopal Krishna Agarwal said, “The prime minister has always said that ‘the government has no business to do business with,'” “As a party, as an ideology, we believe in the free market economy. We do.”

Whether all the pieces come together is anyone’s guess. But the potential rewards are plentiful: About half of IPOs can be raised from individual investors, including teachers, small business owners and parents saving for their kids’ college funds.

A household brand that has long been recognized in every part of India, from mountainous Kashmir to the villages of the Andaman Islands, may soon become a global domination.

Bhagwati Prasad Sharma, one of the 1.3 million agents of LIC, said, “I am asking all my clients to invest in this.”

This story has been published without modification in text from a wire agency feed. Only the title has been changed.