Govt expects LIC IPO to set the stage for wider reforms

“There is a need to correct the perception that we’re doing the IPO solely to meet the disinvestment target. That is not the case,” the official said, asking not to be named.

“From the beginning, the aim has been to usher in reforms. The finance minister has also stressed on this,” the official said, indicating that proceeds from India’s biggest IPO could set the tone for future disinvestments or IPOs of other locked assets of the government that may derive high value.

This would also align with the government’s larger policy of moving out of non-strategic sectors completely, while having minimal presence in the identified strategic sectors of atomic energy, space and defence, transport and telecommunication, power, petroleum, coal and other minerals, and banking, insurance and financial services.

Getting the LIC IPO into motion sends a strong signal to the market that the government means business, economists said.

“Disinvestment and asset sales are two big reforms that the government has been trying to push under hard conditions. More than setting the tone for future divestments, it will reflect government determination and boost sentiment at a time the market is unsure on whether the government is holding back because of uncertain conditions,” said Madan Sabnavis, chief economist at Bank of Baroda.

The IPO of the country’s largest insurer is expected in the first week of May. The board of LIC has agreed to dilute a 3.5% stake with an upper limit of 5%, amid headwinds from volatile stock markets and investor interest, Mint reported on Saturday.

The government aims to garner ₹21,000-30,000 crore from the sale, at a valuation of ₹6 trillion. The reservations, discounts and issue price will be ascertained by Wednesday morning.

The largest IPO to come to the Indian stock markets will, therefore, take place well before its deadline of 12 May after which it will have to refile the draft red herring prospectus with March quarter results.

The success of LIC’s IPO will determine whether the government is able to meet its asset sales goal, which has been cut to a modest ₹65,000 crore for the current fiscal, lower than the revised ₹78,000 crore for the previous fiscal.

The government could meet less than 17% of the revised asset sales target for FY22 as the Russia-Ukraine war and the ensuing volatility in the stock markets forced it to postpone the LIC share sale to the current fiscal year.

Mint reported earlier this week that the country’s largest insurer put up a stellar performance, with first-year premium collection, a key metric, rising 7.9% to ₹1.98 trillion for the year ended 31 March, with a market share of 63.25%, lower than that of the previous year.

However, in March, the company’s premium collections grew 51% to ₹42,319.22 crore from a year earlier, garnering a market share of 71%. LIC sold 21.7 million insurance policies in the year ended 31 March, 3.54% more than the previous fiscal, boosting its market share to 74.6% in terms of policies sold.

The mega IPO has drawn significant interest from at least 12 large foreign and domestic fund management firms, Mint reported last week.

At least five of India’s top asset management companies, at least three large foreign sovereign funds, two global pension fund management companies and two global hedge funds have committed to invest ₹18,000 crore to bankers managing the LIC IPO, the report said.

Mint had also reported that domestic mutual funds are likely to invest as much as ₹7,000-8,000 crore as anchor investors.