The situation has started clearing up regarding the much-awaited IPO of state-run insurance company LIC. A day earlier on Monday, the government presented a revised draft of the IPO (updated DRHP) to the market regulator SEBI. After this, the board meeting of the Government Insurance Company (LIC Board) is going to be held on Tuesday. In the revised draft, the government has not only reduced the valuation of LIC but also reduced the size of the IPO. However, the terms regarding the price band of the issue (LIC IPO price band) are not yet clear.
Biggest IPO even after being small
This IPO of Life Insurance Corporation is going to open for retail investors on May 4. The IPO will be open for bidding till May 9. LIC IPO for anchor investors will open on May 2. It will be officially approved in the board meeting today. The government is planning to raise Rs 21 thousand crores through this IPO. In this way, this first issue of LIC is going to become the biggest IPO in the history of India.
Calculation of new value of LIC
Although earlier this IPO was being speculated to be bigger. Earlier it was believed that the government would try to sell its 10 percent stake in the IPO. Later, when the first draft was presented, the government took approval from SEBI to sell a 5 percent stake. The government has now reduced the valuation of LIC as well. Now the value of LIC has been estimated at Rs 6 lakh crore. This is approximately 1.1 times the Embedded Value.
The sales environment made the size so small
This LIC has been affected a lot due to the ongoing sell-off in the stock market for the last few months. Now it is not only coming after a delay of months, but its size has also reduced manifold. The government wanted to bring this IPO before March 31, 2022, to meet its disinvestment target. After the start of the war between Russia and Ukraine, the sales period dominated the market. Due to this the government also lowered the disinvestment target and postponed the much-awaited IPO of LIC. Earlier it was believed that the size of this IPO could range from Rs 80 thousand crores to Rs 1 lakh crore. Now its size is 4-5 times smaller than the initial estimates.
So much reserve for employees, policyholders
According to the updated DRHP, there will be a maximum of 5 percent reservation for LIC employees in this IPO (LIC IPO Reservation). Similarly, a maximum of 10 percent of the IPO is going to be reserved for the policyholders of the company. The LIC board had last week approved the sale of a 3.5 percent stake in the government. In this way, it becomes around 22.14 crore shares. Earlier, when the government handed over the first draft to SEBI, there was talk of selling a 5 percent stake i.e. 31.62 crore shares.
This could be the price band of LIC IPO
If we look at the current information, then the price band of LIC’s IPO can be around Rs 950. Although officially information about this will be available only later. A government official had told me that if the market conditions improve in the coming days, then the size of LIC’s IPO can be increased to 5 percent. Also, it is not clear what will be the lot size of this IPO (LIC IPO lot size).