LIC re-files updated financials with SEBI for proposed IPO

In an interesting move, the government of India on Monday has filed updated draft papers with SEBI pertaining to its initial public offer. The updated filing by the government also incorporates the financials of LIC for December 2021 quarter.

The original DRHP only had filings till the September 2021 quarter. It may be recollected that the LIC IPO had already got approval based on September financials filed and approval is valid till 12th May 2022.

The original plan of LIC was to come out with the IPO in the current fiscal year FY22 itself. However, the uncertainties created by the war in Ukraine, disruption of supply chains, steep spike in inflation and surge in FPI outflows forced a change of heart.

With the updated filings, the government can extend the validity period of the SEBI approval up to August 2022, subject to undertaking actuarial valuation exercise once again.

According to a statement issued by the DIPAM, the updated DRHP had to be filed for LIC incorporating the December quarter financials. This was necessitated as per the observations made by SEBI.

Normally, when the DRHP is filed for an IPO, the SEBI gives its observations, which his tantamount to SEBI approval. However, it behoves upon the issuer to ensure that the stipulations in the observations are adhered to before the actual IPO.

In terms of the updated financials for the December 2021 quarter, the Life Insurance Corporation had reported net profit of Rs.235 crore. This took the cumulative net profit for the 9-month period from April 2021 to December 2021 to Rs.1,672 crore.

The higher profits YoY would enable LIC to justify higher valuations. One of the concerns about LIC was that the profits were grossly inadequate compared to the dominance on the top line.

The LIC IPO is expected to garner funds in the region of Rs.60,000 crore to Rs.65,000 crore for the government. It will be an 100% offer for sale with no fresh issue component. The IPO envisages the government of India divesting 5% stake in LIC, equivalent to 31.6 crore.

The amount raised by the government through the LIC 5% divestment was to go a long way in meeting the revised disinvestment target of Rs.78,000 crore for FY22. Now that is unlikely!

While the LIC IPO would now more likely happen in the next fiscal year FY23, it is still likely to remain the biggest IPO in India by a margin. The previous mega IPOs in the Indian market were Paytm Rs.18,300 crore (2021), Coal India Rs.15,500 crore (2010) and Reliance Power Rs.11,700 crore (2008).

Ironically, all the 3 mega IPOs till date have been gross underperformers post listing. That would be the big sentimental overhang for the LIC IPO.

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