LIC may file IPO papers in the coming week

The LIC IPO has had a rather charmed and erratic life. It started off with a lot of fanfare about 2 years back, but the entire process got delayed by the pandemic.

By the time the approvals had come through, the valuations were down and the government was ready to sell the stake, the Ukraine Russia war had begun. Amidst rising input costs, hawkish central banks, risk-off investing and FII outflows, LIC IPO had to be put off from FY22 to FY23.

After a long wait, it looks like the LIC IPO may finally see the light of day. The board of Life Insurance Corporation (LIC) plans to meet over the weekend to finalise its results for FY22. Along with latest financials, LIC also plans to simultaneously file a revised public offer document by mid-next week.

The idea is to perhaps change the pricing formula, the valuation sought and the stake that the government is willing to sell.

The government needs to complete the IPO of LIC before 12th May. That is when the original approval given by SEBI for the LIC IPO would expire with the current data filings.

If the IPO extends beyond 12th May, then LIC would be compelled to seek a fresh actuarial valuation report and that would be too tedious and cumbersome and could entail extraordinary delays in the entire IPO process. That is the reason for the 12-May target.

The LIC may look at 3 key things. It will want to complete the entire issue as quickly and quietly as possible. Secondly, LIC will also want to be a tad flexible on valuation considering the current geopolitical risks.
 

Thirdly, the LIC IPO will heavily count on institutional support for seeing the massive IPO through. Roadshows for the initial public offer (IPO) will start immediately after and the issue dates are announced; possibly the first week of May 2022.

The game plan is something like this. Once the annual results for FY22 are approved by the board of LIC, it would be sent to the IRDAI and a revised offer document would be filed after that. In fact, the original DRHP filed with SEBI has envisaged a 5% dilution by the government.

However, if the response happens to be very encouraging, the government will most likely be open to sell another 2%. It may even temper down its valuations.

The government had originally budgeted Rs.65,000 crore as divestment revenues for the government from the LIC IPO sale. With the embedded value of LIC estimated at Rs.5.40 trillion, the government can technically raise Rs.60,000-70,000 crore via a 5% stake sale.

However, considering the current market conditions and the overall macro and geopolitical scenario, the government may actually tone down its expectations of price and valuation.

LIC had filed its DRHP on the basis of Sep-21 results, but it has already filed the addendum with SEBI incorporating the Dec-21 results too. Hopefully, if the government is a tad more flexible and realistic, it should be able to complete the LIC IPO ahead of the 12th May deadline.

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