Shares in Indian state-owned insurance giant Life Insurance Corporation (LIC) went up for sale in a $2.75bn (£2.18bn) IPO, drawing strong demand from institutional investors.
The government is offering a 3.5% stake in India’s largest equity sale, although both the size and valuation of the issue have been trimmed significantly to reflect current market conditions.
The date for listing the shares is May 17, the government’s Ministry of Investments and Public Wealth Management said.
Offers for anchor investors opened on May 2nd, but share sales to the public will begin on May 4th and end on May 9th.
General investors can buy shares at a price range of $11.75 to $12.36 (£9.38 to £9.87) per share.
The company’s policyholders, employees as well as small mom and pop investors are eligible for an additional rebate of up to Rs 60, according to documents the company has filed with the Indian Securities Commission.
Brokerage firm Zerodha expects at least 8 to 12 million additional online trading accounts to be opened by investors looking to apply for the IPO, an increase of 10 to 15% from the current 80 million accounts.
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LIC is almost as old as independent India. Formed through the nationalization and merger of 245 private insurance companies, it began issuing policies in 1956 and held a monopoly on the Indian insurance sector until the turn of the millennium.
More than two decades after private competition was allowed, LIC continues to hold a leading position with a 66% market share as of 2021.
Its sheer size makes the insurance giant a systemically important company for India.
At over $500 billion, its wealth base is larger than the GDP of several countries. And with nearly 280 million valid policies, it manages four times more policies than the entire UK population.
It is also India’s largest wealth manager with massive investments in government and central securities and the stock market.
According to the rating agency CRISIL, LIC’s holdings in public companies accounted for 4% of the total market capitalization of the National Stock Exchange. It has also been the government’s default financier in troubled times, bailing out ailing state-owned companies.
LIC also owns an expansive real estate portfolio across India.
With 1.3 million distributors selling policies in virtually every corner of India, the ubiquitous ‘LIC agent’ has occupied a unique place in the public consciousness of independent India.
Srinivasalu Naidu, a 70-year-old who has been selling policies door-to-door for the past 30 years, told the BBC he was known in his heyday as “LIC Naidu,” a much-respected figure in his village in the southern Indian state of Andhra Pradesh.
Agents like him have been critical to the company’s growth and mission to build trust and create a savings culture in the far corners of the country.
“People didn’t just buy policies from me as insurance, they did it as an investment. For your children’s education or wedding. They trusted me with their life savings,” Naidu said.
Private banking giant UBS estimates that 10 in every 100 rupees saved by Indian households goes into LIC, a much larger amount than even the deposits attracted by India’s largest bank, the State Bank of India.
Given LIC’s societal relevance and downgraded valuation, India’s opposition politicians have accused the government of selling “family silver” and prioritizing shareholders over politicians.
Even at the premium end, LIC’s issue was valued far lower by the government than its three publicly traded private peers — HDFC Life Insurance Co., SBI Life Insurance Co., and ICICI Prudential Life Insurance Co., analysts said.
“It’s not justified at all. You should also involve the opposition (in deliberations) when you divest something like the LIC, which is a social safety net,” said Dr. Shama Mohamed, a spokesman for the Congress Party, the BBC.
Last month, Prime Minister Narendra Modi’s government decided to postpone the mega-IPO amid global stock market volatility due to the Russian invasion of Ukraine. It originally planned to raise about $8 billion by selling 5% of LIC to fund its growing fiscal deficit — the gap between revenue and expenditure.
Amid rising fuel costs and lower growth forecasts, the trimmed fundraising target is expected to put additional pressure on New Delhi’s already stretched finances.
But analysts say the size and price are reasonable given the current environment, with foreign investors investing nearly $20 billion since October 2021.
“Even though we have a somewhat constrained environment, we can do it because that’s the optimal demand scenario that exists,” Tuhin Kanta Pandey, secretary of the Ministry of Investments and Public Wealth Management, told reporters in Mumbai last week.
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In the long term, a stock exchange listing should improve the management of the company and bring more transparency.
But at a time when all its competitors are going digital, LIC’s apparent reliance on physical distributors has been reported as a cause for concern from analysts, who believe the company will continue to lose market share in the years to come.
“On the margin front, it will be quite difficult for LIC to compete if they stick to the distribution model. They need to reinvent the company and become relevant to tomorrow’s insurance market,” says Nikhil Kamath, co-founder of Zerodha.
According to business commentator Vivek Kaul, LIC pays agents twice as much in commissions as private insurers in the first year, which is unsustainable in the long term.
Covid-19 has also had an impact on the company. New business premium growth slowed significantly as lockdowns disrupted operations, reinforcing the need for LIC to make significant use of technology to increase operational efficiencies.
However, analysts expect India’s young population and massive life insurance underfunding will give LIC a long way to expand.
According to analysis by brokerage firm Anand Rathi, India’s protection gap — or the difference between the insurance required and what is actually available — was 83%, or $16.5 trillion, in 2019, the highest in Asia-Pacific, “thus setting represents enormous growth potential”.
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