Estimated at $ 203 billion, India is ready for the LIC IPO, the largest ever Business and Economic News

In the elegant skyscrapers of Mumbai, the frightened bankers do a time trial to evaluate a company that has not been valued for decades. Bureaucrats have burned oil in New Delhi at midnight, and are working through power cuts to make an initial public offering against any Asian this year. And all over the interior, front-page newspaper ads warn more than 250 million policymakers of the possibility of owning almost as much of a business as post-independence India.

For almost two years, India has risen to a daunting task: to prepare the country’s top insurance company – with nearly $ 500 billion in assets and a valuation of $ 203 billion – for what could be its largest share list. Some bankers have described India Public Life Corp.’s public offering, or LIC, as Aramco India’s moment. As is the case with the $ 29.4 billion list of the Gulf oil giant, the largest in the world, the debut of LIC will test the depth of the nation’s capital markets and its global hunger for the jewel in the crown of its state.

It is far from assured of success. With about two months to go before the start of the goal, consultants are pouring in a number of policy documents to achieve the embedded value of the LIC, a key valuation measure. Bankers say global investors are concerned about the autonomy of an institution that is in the service of collapsing banks and rescuing state assets on a regular basis. Local investors are skeptical that 65-year-old companies will be able to compete against the upswing.

A knock-out list could raise the LIC $ 10 billion from the IPO, with a minimum dilution of 5%. This would be the third largest in the world in which insurance is involved. More importantly, it would strengthen Prime Minister Narendra Modi’s reputation as a market-oriented reformer ahead of key state elections and help cover a mere budget deficit.

“If the listing happens, it could change India’s global image,” said James Beeland Rogers, who has been investing in new markets for decades and Beeland Interests Inc. and chairman of Rogers Holdings.

The size of a giant

LIC is the Indian household name. With 2,000 offices, more than 100,000 employees and 286 million police officers, the Mumbai-based company reaches almost every corner of the country. The large size of the LIC reveals the challenges of listing everything in the black box.

The insurer issues its balance sheet only once a year, which means that there are no publicly available numbers to identify its embedded value, which combines the current value of future earnings with the net asset value. Milliman and Ernst & Young executives overseeing the assessment need to look at a stack of policies to consider broad parameters such as mortality, illness, failure, and performance.

It’s hard to compare it to your classmates. The LIC, founded in 1956, follows the rules set by a special legislative act in place of the law governing other insurance companies in the nation. As of March 2020, the LIC’s assets were worth about $ 5.8 billion internally, according to a person with knowledge of the subject, although it is unclear whether all of this was in line with current market rates.

The LIC plans to present a draft IPO in the last week of January, which will provide embedded value and the number of shares to be sold, depending on the people with knowledge of the subject.

“What an internal valuation that a company of this size would have assumed almost every year is not done,” Indian Finance Minister Nirmala Sitharaman told Bloomberg in an October interview. “Essential assessments and the efforts needed to maintain them properly – and the efforts needed to keep them properly valued – are now being made.”

Sitharaman has set a March deadline for the list. If investors agree with the $ 203 billion valuation demanded by the government, LIC would compete against India’s largest companies – Reliance Industries Ltd. and Tata Consultancy Services Ltd. The IPO would cover the bulk of the $ 23.5 billion asset sales target needed to connect India. an increase in the budget deficit, which is expected to be 6.8% this year.

The LIC has no comment.

Investors want answers

Another challenge is to convince foreign investors that the LIC will provide for them.

The ten bankers who manage the list spoke to almost every major fund that might be interested in buying the shares, including GIC Re, Canada Pension Plan Investment Board, Blackrock Inc. and the Abu Dhabi Investment Authority, with people familiar with the subject.

Many investors in the Mumbai world wanted to know after the list that the LIC would have more autonomy from the Indian government. Citizens said they were skeptical at first, noting that the company has marks on a slow arm of the establishment.

With each organizer receiving at least Rs 10 crore ($ 135,000) in fees, the actual profits from the LIC transaction would be small if you removed the prestige of offering what would have been the biggest sale of red-hot shares in the Indian market, some of them. said the people.

GIC and Blackrock did not respond to requests for comment. The CPPIB and the Abu Dhabi Investment Authority declined to comment.

But for deep-seated investors who don’t have much space to park money after China’s technology downturn last year, LIC can still be a good bet. The company has one of the largest assets under insurance in the world, accounting for two-thirds of India’s insurance market share.

The LIC also has a sovereign guarantee on all payment liabilities, which means that it can operate on a finer capital basis than its competitors. With a rating four times higher than AIG, the company can attract investors and seek returns for security.

“The IPO of the Life Insurance Corporation is a great development not only for India’s capital markets but also for India’s economic growth,” said Mark Mobius, a veteran investor in emerging markets and founder of Mobius Capital Partners LLC.

He said the listing of massive state-owned companies like LIC “results in an expanded market capitalization in India with generally higher liquidity, and is attractive to large investors like pension funds and endowments not only in India but also abroad”.

India had a great year for IPOs and the strong debut of LIC would be built on that momentum alone. The list grossed about $ 18 billion in 2021, although the results of some of the most anticipated revenue streams were mixed, including Paytm, a digital payment service, and Zomato, a food delivery launch.

Rise across India

As the deadline approaches, India’s bureaucracy maze has become a pressure cooker.

Divestment Department officials are taking out all night, duplicating hundreds of files and opening their doors to let in the weak winter sunlight when the New Delhi power grid comes out. Bankers are working on holiday trips to the Himalayas and the Maldives. LIC officials said they are missing birthdays, leaving weekends and working against illness.

Indians in rural areas are in a hurry to secure their right to receive a piece of the pie. LIC has started sending SMS explosions to its agents and has started publishing newspaper ads with the headline: “The best thing in life is to be prepared”.

Raj Kumar Shukla, a marketing manager living in Kiraoli, a town in northern India, said a friend told him about the IPO, which prompted him to download an application to track stock indices. He saved Rs 50,000 (about $ 670) and opened a demat account to invest in the LIC.

“The government will benefit from this list,” he said. “They can use the money for the development of the nation.”

Modi’s critics have called for a different kind of divestment. Anshul Avijit, a spokesman for the Indian National Congress, the largest opposition party, said in an interview that the IPO was “slowly handing over our critical resources to private hands”. He called the measure “anti-poor.”

But unlike Aramco’s 2019 IPO, Saudi Arabia appealed to wealthy citizens to buy shares, after global funds refused the initial high valuation of the kingdom, the Modi government lobbied for a different approach: offering 10% of LIC IPO shares to policyholders. across the country.

The participation of LICs in ordinary Indians could provide political ammunition ahead of the regional elections that will begin next month. Many policemen are scattered in northern India, where the ruling Bharatiya Janata Party hopes to retain power.

“The Prime Minister has always said that the government has no business to do,” said Gopal Krishna Agarwal, a national spokesman for the BJP. “As a party, as an ideology, we believe in a free market economy.”

Anyone who puts all the pieces together can guess. But the potential rewards are plentiful: nearly half of the IPO can be obtained from individual investors, including teachers, small business owners, and parents who save for their children’s college funds.

In every pocket in India, from the mountains of Kashmir to the villages of the Andaman Islands, a well-known home brand can make an impact around the world.

“I tell all my clients to invest in this,” said Bhagvati Prasad Sharmak, one of the 1.3 million LIC agents.