The government is still awaiting the completed valuation report, the people said, and projected valuations may change based on that. They added that LIC could be valued at as high as five times the so-called embedded value — higher than 3-4 times for most insurers
Mumbai:
India is pushing for a valuation of about Rs 15 trillion rupees ($203 billion) for a state-owned insurer that’s soon expected to file for the nation’s biggest initial public offering, people familiar with the matter said, even as arrangers awaited a final report on the firm’s estimated worth.
The so-called embedded value of Life Insurance Corp. of India is likely to be more than Rs 4 trillion , and its market value could be about four times that amount, the people said, asking not to be identified as the discussions are private.
Once the final report is in, the valuation the government is seeking could change.
Embedded value, a key metric for insurers, combines the current value of future profits with the net value of assets.
The gauge will be part of LIC’s IPO prospectus that’s likely to be filed in the week starting Jan. 31. Typically, the market value of insurers is between three and five times the embedded value.
If investors agree with those calculations proposed by the government, LIC would join the league of India’s biggest companies — Reliance Industries Ltd. and Tata Consultancy Services Ltd. — which have a market capitalization of 17 trillion rupees and 14.3 trillion rupees, respectively.
A finance ministry spokesman didn’t answer calls to his mobile phone seeking comment, while LIC declined to comment.
The government may be stretching its expectations a bit too far, two of the people said. The final valuation would be decided based on various parameters, including investor appetite, profitability outlook, and trends in the industry, they said.
The first-time share sale by the insurer is part of Prime Minister Narendra Modi’s efforts to mop up cash and help rein in a budget deficit that’s widened in the midst of the pandemic. The government is planning to sell 5% to 10% of the company before the end of March.
A call on the amount of stake to be sold will be taken by a ministerial panel later this month before LIC files the draft prospectus with the market regulator.
At the valuation the government wants, a 5% stake will fetch about Rs 750 billion rupees.
The state-run insurer plans to file the draft IPO prospectus in the week starting Jan. 31, which will provide the embedded value of LIC as well as the number of shares on offer, the people said, asking not to be identified as the deliberations are private. The ongoing virus wave may disrupt schedules, they added.
A finance ministry official wasn’t immediately available for comment. A representative for LIC didn’t immediately reply to an email seeking comment.
The planned deadline would set Prime Minister Narendra Modi’s government on track to list LIC by the end of March, providing a much-needed boost to revenue.His administration had sought to sell a 5%-10% stake in the insurer, fetching as much as 10 trillion rupees, Bloomberg News had reported in September.
The government is still awaiting the completed valuation report, the people said, and projected valuations may change based on that. They added that LIC could be valued at as high as five times the so-called embedded value — higher than 3-4 times for most insurers.
Govt is tweaking guidelines to make sure success of its largest IPO
From adjusting capital-markets guidelines to sending cellphone messages and publishing newspaper commercials, authorities and executives are leaving no stone unturned in attempting to make sure Life Insurance Corp. of India’s file preliminary public providing is a hit.
Prime Minister Narendra Modi’s authorities has the IPO — which may elevate between 400 billion rupees ($5.4 billion) and 1 trillion rupees this quarter — as a key merchandise in its financial agenda, with proceeds from the state-run insurer important to reaching a budget-deficit goal.
“The size of LIC is breathtaking,” mentioned Abhay Agarwal, fund supervisor at Mumbai-based Piper Serica Advisors Pvt. While it is likely to be simple for the federal government to make regulatory amendments wanted for the IPO, “it will require significant marketing efforts to cross the 500 billion rupees line,” he added.
Authorities will evaluate and amend guidelines on foreign-direct funding to make it simpler to lure buyers from overseas, an official mentioned this month with out specifying a timeframe. Equity stakes amongst foreigners are allowed for many Indian insurers, however not in LIC, which is a particular entity created by an act of Parliament.
The clearance for overseas stakes within the mega providing wouldn’t simply allow international funds to take part, but in addition permit them to purchase extra after the trade itemizing. Regulators made different strikes late final month, together with tightening guidelines governing share gross sales by anchor buyers.
‘Be Prepared’
As it units the stage for the providing, LIC has been sending SMSs to policyholders, and final month began publishing newspaper adverts with the title, “It’s best in life to be prepared.” The agency requested clients to replace a few of their private particulars and the accounts that permit them to take part within the subject.
The Securities and Exchange Board of India is planning to recruit 120 senior executives throughout its authorized, data expertise, analysis, and basic and official language departments, representing about 14% of its staff.
More than 110 firms bought shares for the primary time in India final 12 months to boost practically $18 billion, a fourfold improve from 2020. While the common efficiency since debut has been constructive, the nation’s biggest-ever IPO final 12 months was a flop.
Digital-payments large Paytm has tumbled greater than 45% since its $2.4 billion itemizing in November, with analysts pointing to its costly valuation.
Paytm’s IPO toppled the long-standing file held by Coal India Ltd., whose providing in 2010 noticed the federal government promoting a 10% stake within the agency. While the inventory jumped in its buying and selling debut, it’s now down by about one-third from the itemizing worth.
“The government will also need to learn from its past mistake of pricing public sector IPOs too high, said Piper Serica’s Agarwal.
“The valuation will have to leave enough on the table for investors to attract them to the IPO.”said Aggarwal.
Bloomberg