GIC Re’s $1.7 bn IPO sails through with help from LIC, state-run banks
Photo Credit: Manni Das/VCCircle

The initial public offering of state-run General Insurance Corp of India (GIC Re) was covered 1.37 times on the final day of the issue on Friday thanks to support from Life Insurance Corporation (LIC) and some state-owned banks. Wealthy and retail investors largely stayed away.

The IPO, India’s second-largest ever, received bids for nearly 170.46 million shares for the 124.7 million shares on offer, stock-exchange data showed.

The portion set aside for qualified institutional buyers received bids for 2.24 times the 62.27 million shares on offer. A sizeable portion of institutional demand is contributed by insurance behemoth LIC and state-owned banks.

People in the know of the matter said that LIC’s bid value accounted for roughly 65-70% of the total Rs 10,800 crore worth of bids received in the QIB portion. Overall, domestic institutions accounted for twice the institution book.

Retail investors, whose bid value cannot exceed Rs 2 lakh per application, bid for just 56.5% of the shares reserved for them despite the Rs 45 per share discount offered to them.

The non-institutional investors’ category, comprising high net-worth individuals and corporate bodies, bid for only 22% of the shares reserved for them.

The share sale was covered 80% on the first day on Wednesday and made little progress on the second day.

The lukewarm response is despite benchmark indices recovering from its recent correction. The BSE Sensex and the NSE Nifty, both benchmark indices, touched record highs on Friday before paring some gains.

Many domestic brokerages had advised clients to subscribe to the issue citing the company’s leading position in the reinsurance sector, diversified product portfolio and global presence.

“It is a long-term bet. It is linked with farmer crop and industrial infrastructure insurance. However, for retail investors the business is difficult to understand and hence the poor demand,” said an analyst with an American multinational bank, not wanting to be named for compliance reasons. “The stock will not give instant gains but will create wealth in the long run.”

GIC Re’s IPO is India’s second-largest offering after Coal India Ltd’s maiden share sale of Rs 15,500 crore in October 2010. It is raising as much Rs 11,372 crore ($1.7 billion) at a valuation of Rs 79,976.37 crore.

On the grey market, shares of GIC Re were quoting at a discount of Rs 20-22 on Friday, said a market dealer on the condition of anonymity. Mumbai-based GIC has set the price band at Rs 855-912 per share.

The offering comprises a fresh sale of shares worth Rs 1,568 crore and an offer for sale worth Rs 9,804 crore by the government. The public offer will result in a 14.22% stake dilution. The government will get three years from the listing date to meet the minimum public shareholding norms of 25%.

GIC Re, the 12th largest reinsurance firm globally by gross premium written, joins a growing list of Indian insurance firms that have either firmed up plans for a public offering or already gone public. These include SBI Life Insurance Co, ICICI Lombard General Insurance, New India Assurance, HDFC Standard Life Insurance Co and Reliance General Insurance Co.

ICICI Prudential Life Insurance had become the first life insurer in India to go public last year.

The government’s stake sale in GIC Re is part of its record disinvestment target of Rs 72,500 crore for the current financial year to contain the fiscal deficit at 3.2% of the gross domestic product.

Citigroup Global Markets India, Axis Capital, Deutsche Equities India, HSBC Securities and Capital Markets (India), and Kotak Mahindra Capital Company are the merchant bankers managing the IPO.

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