India seeks regulatory fast track for LIC as it gears up for the country's largest IPO

India seeks regulatory fast track for LIC as it gears up for the country's largest IPO

By Reuters

  • 28 Jan 2022
India seeks regulatory fast track for LIC as it gears up for the country's largest IPO
Credit: VCCircle

The Indian government has asked regulators for a swift review of Life Insurance Corporation's draft prospectus, two government sources with knowledge of the matter said - as it pulls out all the stops to have the country's biggest IPO completed by the end of March.

The Securities and Exchange Board of India (SEBI) has been urged to complete its vetting process in less than three weeks instead of the 75 days it usually requires, they said.

"We have 10 bankers for the deal. They are available 24/7 for any questions SEBI might have," said one of the government officials, adding that a "clean" draft prospectus would be submitted.


Having pledged numerous times to list LIC by the end of the financial year, Prime Minister Narendra Modi's administration is keen to avoid any loss of face and gain further momentum for its privatisation programme aimed at replenishing government coffers.

The official also said the finance ministry's divestment department was solely focused on the IPO for the giant state-backed insurer from which it hopes to gain as much as $12 billion, and had put aside other privatisation plans this fiscal year.

The draft prospectus is likely to be submitted to SEBI in the next few days, said the sources, who were not authorised to speak to media and declined to be identified. 


The finance ministry, SEBI and LIC did not respond to Reuters requests for comment.

For its part, LIC, which has nearly $500 billion in assets and commands more than 65% of India's market for life insurance policies, is also sparing no effort to ensure the IPO succeeds.

In addition to heavy advertising in newspapers, 1.2 million field agents have been dispatched across India to woo many of its 250 million policyholders into becoming retail investors for the first time. Policyholders have also received a text message recommending they open an electronic stock holding account so they can participate in the IPO.



How successful any LIC stock sale will be, however, remains an open question. 

Selling 5% of LIC's stock to gain that amount would be ideal but the government is also willing to sell as much as 10%, government and banking sources have said.


Complicating matters is the sheer size of the offering and the fact that India's biggest IPO to date, a $2.5 billion offering from Paytm in November, was a spectacular flop on its debut. 

"We have never seen an issue size of this proportion in the Indian market and even though we know a company like LIC will garner attention, it may not be that easy," said a Mumbai-based investment banker working on the IPO.

"There are still a lot of moving pieces to it to make this IPO a success," he added.


The first government official said Modi's administration had taken Paytm's inauspicious debut to heart.

"We have drawn some learning from there and we will keep the price very attractive for investors," he said.

With LIC a household name in India, bankers say they're confident of robust demand from retail investors, but the strength of institutional demand is unknown.

The government is talking with state-run banks about their participation in the IPO, the two government officials said. 

The government also wants a "solid set of anchor investors" and is in talks with every big fund in the world, said the second government source. Those include Singapore's GIC and the Abu Dhabi Investment Authority, according to one banker.

But investors will only get their first look at 'embedded value' - a measure of future cash flow for life insurers - when the draft prospectus is submitted.

And while LIC's first-half net profit soared to 14.4 billion rupees ($190 million) from 61 million rupees in the same period a year earlier, much of that was due to a jump in investment income while growth in net premiums after reinsurance was just 1%.

Investors are also likely to be concerned that LIC's investment decisions, including those in loss-making state companies, could be influenced by government demands.

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