LIC IPO takes off: Demand from anchor investors is very strong

The LIC, which is planning to raise a total of Rs 21,000 crore through the IPO, has aimed to raise Rs 5,630 crore at the upper end of the price band from anchor investors. The firm has reserved around 59.29 million shares for the anchor portion. Global funds and domestic mutual funds have put in bids for the anchor book.

An anchor investor in an IPO is a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual fund or insurance company which invests before the IPO is made available to the public as per Sebi regulations. As initial investors, they make the IPO process more attractive for investors and instil confidence in them. Anchor investors also aid in price discovery of the IPO.

Anchor investors who get guaranteed allotment a day before the IPO opens to the public are normally allocated 60 per cent of the QIB quota. Companies with a profitable track record can allocate 50 per cent of the IPO to QIBs. The demand in the anchor category is an indication of the success of the IPO, according to analysts.

The LIC has priced the IPO in the range of Rs 902-949 per share. It has offered a discount of Rs 60 for policyholders and Rs 45 for retail investors and employees.

The issue will open for retail investors on May 4 — May 3 is a holiday on account of Eid. Investors can bid for a minimum of 15 shares and thereafter in multiples of 15 shares.

The size of the IPO was cut from Rs 65,000 crore to Rs 21,000 crore as the Russian invasion of Ukraine and sustained selling by foreign investors sent the stock markets into a tailspin.

The Sebi recently said the existing lock-in of 30 days will continue for 50% of the portion allocated to anchor investors and for the remaining portion, a lock-in of 90 days from the date of allotment will be applicable for all issues opening on or after April 1. The change in the anchor lock-in rules is to avoid sell-off by anchor investors. For instance, shares of One97 Communications, the parent firm of Paytm, dipped sharply by 13 per cent on the day the mandatory lock-in period for anchor investors ended.

Meanwhile, analysts expressed optimism about the LIC IPO. “From a valuation standpoint, at the upper band of the issue price, LIC is priced at 1.1x embedded value, which is at a significant discount to peers. Given the attractive valuation, the downside from here seems limited. Further, the fact that a discount has also been offered to retail investors is the cherry on the cake,” said Yesha Shah, Head of Equity Research, Samco Securities.