Mumbai: The board of Life Insurance Corp of India on Friday gave an in-principle approval to the insurer’s initial public offering, but sought certain clarifications and minor changes to the draft IPO document, people familiar with the deliberations said.
The 15-member board may again meet in the night or even Saturday morning if these issues are addressed to clear the draft red herring prospectus (DRHP), these people said.
Expectations are that the DRHP would be filed latest by Monday, but it may happen over the weekend as well.
“The situation is very fluid. Every comma and full stop is being checked and rechecked, which is a mammoth exercise due to the size of LIC,” said one of the people. “The board members have been told to be on standby for meeting at a short notice so… The work is on in full swing,” this person said.
“There are some processes to be followed which is why the filing was delayed on Friday, but we are very close and it will happen in a matter of days if not hours,” said a second person involved in the process.
Actuarial firm Milliman Advisors has pegged the embedded value (EV) of the company at ₹5 lakh crore. EV is a financial gauge and measure of future cash flows for life insurers. The valuation of insurers is set at a multiple of the EV.
“At the current juncture, it is fair to assume that LIC could command a valuation of 3.5 times its embedded value which gives a total market valuation of ₹17.5 lakh crore,” said Manish Ostwal, an analyst at Nirmal Bang Securities.
HDFC Life, currently the most valued life insurance company, is being given a market valuation of ₹1.25 lakh crore, which is more than four times its ₹30,000 crore EV as of December, Ostwal said.
Share Sale Expected in March
“LIC has been losing market share over the last decade, but even then, it corners more than half of the market so a 3.5 times valuation should be fair,” he said.
The central government owns 100% of LIC and expectations are that a 5-10% of the stake may be diluted. At a 10% dilution, the government stands to gain ₹1.75 lakh crore assuming the valuation is at 3.5 times the EV. The government’s disinvestment target for this fiscal year is ₹78,000 crore, after the latest budget cut the previous projection of ₹1.75 lakh crore.
Bankers are hoping that the share sale can be started in March, which will ensure that the government can account for the proceeds from the offer in the current fiscal year itself.
“The numbers being calculated are huge. When the IPO was first announced, the government had pegged the total valuation of LIC at Rs 10 lakh crore … Now, if we are talking about a Rs 5 lakh crore EV and a four times valuation, the numbers are astronomical and cannot be explained,” said an industry watcher.
Life insurance companies such as ICICI Prudential Life and HDFC Life are trading at two to four times their EV. But that does not necessarily translate into a similar valuation for LIC because of its sheer size. Investors may also discount for state ownership as in the case of banking, where state-owned lenders are traded at less than half the private sector peers due to business outlook.
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