India may relook at LIC IPO timing says Finance Minister

This was something most people were anticipating. It is just that nobody wanted to come out and publicly say that the LIC IPO would be postponed. Finally, no less than the finance minister herself has admitted that the government may have to do a rethink on the LIC IPO dates. Originally, the government was quite confident of doing the IPO in the second week of March and listing it before the year end. Now that looks a tough call.

Yes, you can blame it on the ongoing war between Russia and Ukraine in the Caucuses. More than the war, the disruption of oil supply chains, the impact on global supply chains and the effect of the sanctions on Russia on its partners is going to queer the pitch for most global economies including India. Also, with crude prices at $110/bbl, the rupee becomes extremely vulnerable and most FPIs may not be willing to commit funds to a big ticket IPO.

With the tensions escalating between Russia and Ukraine, Finance Minister Nirmala Sitharaman acknowledged that while the intent was to do the IPO of LIC in FY22, that would be a tough call. It now looks increasingly likely that the LIC IPO could be pushed to the next financial year. The final call will be taken after the government holds  a high level meeting to reassess the IPO timing in the light of the escalating Russia-Ukraine war.

Finance Minister Nirmala Sitharaman had already given a reasonably strong hint when she said that the emerging global situation may warrant a relook at the IPO timing. The IPO has been in the works for more than 2 year and it is only a month back that Milliman Advisors had submitted its actuarial embedded valuation report on LIC. On 13th February, the DIPAM had filed the draft red herring prospectus (DRHP) with SEBI.

The LIC IPO was to be an entire offer for sale (OFS) wherein the government would offer 5% of its holding in LIC to the public. The government was supposed to offer nearly 31.2 crore shares to the public and the indicative pricing was pegged in the range of Rs.2,000 to Rs.2,200 per share. However, the worsening geopolitical situation came as a nasty surprise for the government and has almost made it difficult to go ahead with the IPO.

Even as late as 22nd February, Nirmala Sitharaman had been extremely confident and assured market experts in Mumbai that the government was going ahead with the IPO which had generated a positive buzz in the market. However, the deterioration in the geopolitical situation and the impact on the price of crude oil had taken a turn for the worse and put tremendous pressure on the Indian economy. It is just too much of a risk.

LIC IPO is not just about disinvestment targets but also about the prestige and the image of the government. It cannot afford to let the issue be undersubscribed or list at a discount. Considering that the LIC IPO would be nearly four times the size of the largest IPO till date, the stakes are just too high. In these circumstances, the more prudent decision appears to be to postpone the IPO till the global situation improves.

There are a number of reasons why the government is worried about the LIC IPO. The military conflict has already sent jitters across global markets. The sanctions imposed on Russia are considered stringent and feared to exacerbate the crisis. With Russia being one of the largest producer of commodities, it is likely to hit most of the commodity markets first. The Russian markets have been hammered but the impact is likely to be felt far and wide.

While the final word is still awaited, it does look like putting off the LIC IPO to the next fiscal year may be the most prudent choice. More so, when the stakes are so high.

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