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India’s largest insurer Life Insurance Corporation of India (LIC) will list on the exchanges on May 17 and is expected to raise Rs 20,558 crore, by diluting 3.5% stake through its maiden public offering. The issue will open for subscription on May 4 and will close on May 9. The anchor book of the issue will open on May 2, the insurer announced on Wednesday.

The government is offloading 221.3 million shares through the offer — valuing the insurance behemoth at nearly Rs 6 trillion, considering the upper price band of the offer. Some market experts said during an analyst call that such a limited dilution will create a demand supply mismatch post listing, leading to a sharp spike in the stock’s price. A limited free float will help the insurer get a higher valuation during its subsequent follow-on offer.

Representatives from the government said during the analyst call that the anchor book is strong as the bankers have been working on it for a while. 

The issue size was reduced from nearly Rs 60,000 crore earlier to nearly Rs 21,000 crore at the time of filing the final documents, considering the volatility in the equity markets and subdued demand from foreign investors. The government however expects a significant demand from retail investors in the country’s largest IPO.

Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management (DIPAM), said despite the reduction in size, the LIC IPO will still be India’s biggest public offer. “The IPO of LIC is of right size given the capital market environment, and we expect significant retail participation. The IPO will not crowd out capital and monetary supply, given the current environmental constraints,” Pandey said at a press conference here on Wednesday.

In a bid to boost demand, the government is offering shares at a lower valuation compared to other private players. Valuations were trimmed after considering feedback from investors and existing market conditions due to the geopolitical concerns and other global factors. Pandey said that the valuations are “fair and attractive” and the decision was taken amid a decline in volatility and strong domestic flows. MR Kumar, chairperson, LIC, said, “Valuation is based on the circumstances and the need of listing.”

According to the offer documents, around 1.5 million shares will be reserved for employees of LIC, while 22 million shares will be reserved for policyholders. The price band of the issue has been set at Rs 902-949, while retail investors and employees will get a discount of Rs 45 from the offer price. Policyholders of LIC will get a discount of Rs 60.

Pandey said the government is not keen on diluting further stake through a follow-on public offering for the next one year at least. In any case, according to the market regulator, companies aren’t allowed to carry out FPOs for a minimum six months after the IPO.

LIC has got an exemption from the Securities and Exchange Board of India (Sebi) for the new rules on the minimum lock-in period of 90 days for anchor investors. According to the final documents, the minimum lock-in period for anchor investors will be only 30 days.

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Author: Howard Caldwell