Even as the Department of Investment and Public Asset Management (DIPAM) is learnt to be keen on launching the LIC initial public offering in March 2022 to meet its revised disinvestment target for the current fiscal, some key regulatory sector officials have been advocating against the move, citing low percentage of policyholders having PAN linked to their policies and even lower numbers having demat accounts. There are also fresh concerns over geopolitical developments in Russia-Ukraine and its impact on markets, FPI outflow over the last couple of months, volatility in markets and March not being a right month for a large public issue.
Atleast two key officials indicated that the timing could be inopportune for the LIC IPO on account of several factors.
“The main concern comes on account of policyholders. While there are close to 30 crore LIC policyholders, less than 4 crore have their PAN linked to their policies. Even lower numbers have Demat accounts. Though LIC has been pushing its policyholders to link their PAN with their policies and policyholders to open Demat accounts, we are not sure if enough has happened on that front,” said one source. He added the current market volatility also does not augur well for a large issue.
Another official who did not wish to be named cited the overall weakness in the market and sharp outflow of FPIs as another reason for not coming out with the LIC IPO now. Over the last two months, FPIs have pulled out a net of over Rs 64,461 crore. “Generally, March is not a good time for a large issue as companies have to file their advance taxes and so the liquidity is low in the market. Also, while the market has been weak over the last couple of months and FPIs have pulled out large sums of money from Indian equities, the recent geopolitical concern comes as a fresh concern,” he said.
He added when you come out in a choppy market with a large issue, “you not only run the risk of undersubscription but also are not in a position to command a good price or premium and hence would lower your realisation. You should not come with the IPO just because you want to achieve the disinvestment target for the year. I don’t think that would be the right call,” said the official.
LIC is expected to raise around Rs 60,000 crore from its public issue. Last week, LIC Chairman MR Kumar had expressed his keenness to launch the IPO in the current fiscal itself. “We are watching the geopolitical developments very closely. We are keen on listing in March,” Kumar said last week, referring to the market volatility and developments in Ukraine.
However, the final decision on the IPO launch will be decided by the government in consultation with the investment bankers and LIC. On February 24, the Sensex crashed by 4.7 per cent (2,702 points) when Russia invaded Ukraine but recovered partially by 2.44 per cent (1,329 points) the next day. As the markets are likely to remain volatile in the coming days, any further steep fall can impact the IPO pricing.
Meanwhile, government departments and other stakeholders have been preparing the grounds for the public issue to be launched in March.
On Thursday, index maintenance sub-committee of NSE Indices Ltd decided to relax the eligibility criteria of Nifty equity indices, reducing the minimum listing history of constituents from three months to one calendar month. While the changes will be effective from March 31, market sources say the relaxation will pave the way for the inclusion of Life Insurance Corporation (LIC), which plans to list its shares in March, in the benchmark Nifty 50 Index after a month of its listing.
In another move, the Union Cabinet on Saturday cleared an amendment to the FDI policy to allow foreign direct investment (FDI) up to 20 per cent under the “automatic route” in the state-owned Life Insurance Corporation. “The change in FDI policy is sufficient to facilitate foreign investment in LIC up to 20 per cent,” said a government official, noting that an amendment to the LIC Act, 1956, was not required. According to the offer document, as much as 50 per cent of the IPO will be allocated to qualified institutional investors (QIBs). It has allocated 5 per cent of the offer for employees, 10 per cent for eligible policyholders and 35 per cent for retail individual borrowers (RIBs).
Bankers are expecting a good response from QIBs and retail investors. Investment banking sources said once Sebi approves the issue in the coming days, the IPO will open for subscription in March second week and trading will commence by the third week of March 2022 as per the current plan.