Has LIC missed a golden opportunity to make another billion dollar market-cap firm?

The country’s largest IPO — ₹21,000 crore — from LIC of India is all set to open on May 4 at a price band of ₹902-949. After several days of speculation on the launch date since September last year, the IPO has finally seen the light of the day. The issue will be open to public till May 9, while anchor investors can bid earlier, on May 2. Employees and retail investors will get a discount of ₹45 while policyholders will enjoy a better discount of ₹60.

The price band places LIC’s valuation at ₹6-lakh crore. However, the insurance behemoth has missed a golden opportunity to create another billion dollar market-capitalisation company alongside the IPO launch.

LIC’s advt propaganda

Due to the turbulence in equity markets in recent months (both globally and domestically), the IPO size has been trimmed to ₹21,000 crore, with the government reducing its stake dilution to 3.5 per cent from the earlier 5 per cent. The initial proposal was to raise at least ₹65,000 crore through the LIC disinvestment.

Once the Central government had initiated the disinvestment process of LIC, the insurance major launched several advertisements through various channels — including newspapers, FM radio and social media. LIC has advised its policyholders to open a demat account to participate in the proposed IPO.

“If you are a LIC policyholder and want to take part in the insurer’s proposed initial public offering (IPO), then you need to make sure your PAN details are updated in LIC’s records and you need to have a demat account,” said a newspaper advertisement.

CDSL — the key beneficiary

The results generated by the advertisements were tremendous. The major beneficiary was Central Depository Services (India). The number of demat account crossed the 6-crore mark on February 28, the cut-off date for policyholders to become eligible to receive shares under the quota.

Over the last one year alone, the number nearly doubled to 6.3 crore as of March 2022-end from 3.31 crore demat accounts at of March 2021. No doubt, LIC was one of the major contributors to this jump.

Growth at the other depository — National Securities Depository — was not as great; the figures currently hover at around 2.6 crore demat accounts.

Rahul Jain, Director of the Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance had recently said, “The response to our IPO launch is wonderful. We have some figures — 6.48 crore policy holders linked their PAN number with the policy details up to the cut-off date (February 28, 2022).”

Rising m-cap of CDSL

This growth has reflected in the share price of CDSL too. From ₹655 as of March 31, 2021, the stock has more than doubled to its current level of ₹1,400. The NSE-listed company now commands a market cap of ₹14.61-lakh crore. CDSL had launched its ₹524-crore IPO in 2017 at an IPO price of ₹149.

Had LIC launched its own depository, a majority of these benefits would have been accrued to itself. It would also not have been difficult to launch a depository service given LIC’s technical as well as financial strength.

Such a service would have easily gained at least one crore accounts, increasing the much-needed competition in the depository space. 

Published on


April 29, 2022