LIC may split its proposed IPO into 2 tranches

It has been widely reported that LIC may consider splitting its proposed IPO into two tranches. In the recent week, the IPO response was starkly weaker than the previous week since liquidity for most retail and HNI investors was stuck in previous week’s IPOs. This has raised questions about the ability of the market to absorb a massive IPO in one go.

The IPO market has seen solid action in the current fiscal. Between April and July, the IPO markets managed to raise close to Rs.28,000 crore. August alone is expected to raise another Rs.30,000 crore taking the total IPO fund raising to Rs.60,000 crore by end of August. Then there are some mega IPOs lined up like the Rs.16,600 crore Paytm IPO, Rs.6,500 crore Policybazaar, Rs.5,500 crore Bajaj Energy and the Rs.4,000 crore Nykaa IPO. DIPAM is concerned that, in the midst of this deluge, doing the entire LIC IPO in one shot may be tough.

There are two proposals for LIC IPO that the government is mulling. Firstly, there is a proposal to split the IPO into two tranches of Rs.35,000-40,000 each and space them with a gap of 2-3 months. The second option is to get the cornerstone or anchor investors to put in large bids ahead of the IPO to enthuse the markets. DIPAM is currently evaluating all possible options. 

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LIC IPO does not have to only compete with private names. There is the massive BPCL stake sale, which will also absorb a lot of liquidity from the market. Even the Air India divestment is likely to impact institutional liquidity. The government, obviously, does not want to get into a situation wherein the market is unprepared for an IPO of that size.