For the past few months, a cast of Indian government officials, private lawyers, actuaries and dozens of bankers from 10 banks, have been in a race against time.
From offices in New Delhi and Mumbai, they were hurrying to float India’s state-owned Life Insurance Corporation, expected to be India’s biggest-ever initial public offering. They had a monstrous deadline.
Everything, from complex actuarial valuations to investor marketing to the IPO launch itself, needed to be finished by the end of the fiscal year on March 31, to make sure that the government could book the takings for the current year.
So massive has the effort been that Nirmala Sitharaman, India’s finance minister, likened LIC’s IPO to the annual Rath Yatra festival. There, multitudes of worshippers pull three towering “rath” platforms dedicated to Hindu deities, the largest of which is the Jagganath Rath.
Selling 5 per cent of LIC’s shares was expected to raise up to $8bn, part of a government disinvestment strategy launched in early 2020. But two years on, with Russia’s war in Ukraine unleashing severe market turbulence, the LIC’s juggernaut public offering could be in danger.
“When I last commented . . . the tension was building up,” Sitharaman told BusinessLine, in an interview published on Tuesday. “Now there’s a full-scale war. Therefore, I need to go back and review the situation.”
Created by a special act of parliament in 1956, as India nationalised life insurance, LIC held a monopoly for more than four decades before the government allowed private players to enter the market at the turn of the millennium. Mandated to spread life insurance to India’s smallest town and furthest-flung village, LIC provided reasonably priced cover and a way for millions of people without bank accounts to save money.
Since then, new insurance companies have eaten away at LIC’s market share. But compared with its competition, it is gargantuan.
LIC has 64 per cent market share of total premiums, according to its draft prospectus. And at $495bn, LIC’s assets under management are three times that of all other life insurers in India.
LIC’s draft prospectus was filed on February 13. By then, Indian stocks were already under pressure because of concerns about Federal Reserve rate rises and worries about overvaluation of tech stocks.
Nonetheless, New Delhi officials had sounded confident that they would soon see their “Aramco moment” come to fruition. “The current volatility doesn’t matter to us,” Sitharaman said at the time.
As the government looked for anchor investors, hoping to drum up interest with sovereign wealth funds, bankers reported that their marketing departments were busy encouraging retail investors to participate. Existing policyholders and LIC employees will get discounted shares.
Concerns about LIC’s future profitability have been somewhat assuaged by an important rule change. It had been obliged to share 95 per cent of surpluses with policyholders but will now be able to keep more of them. But difficult market conditions are sharpening investor attention on potential risks.
LIC’s yields on its investments and the rate of payments it collects from customers for policies are “much lower than private sector peers”, analysts at Macquarie have pointed out. Other investors say that majority ownership by India’s government, which will retain 95 per cent of the shares and which LIC itself has flagged as a risk, gives them pause for thought.
On top of that, many investors were burnt last year by India’s biggest IPO to date, digital payments company Paytm. Shares bought in the offer at Rs2150 in November are languishing at about Rs785.
Ultimately, market volatility makes pricing LIC’s shares even more difficult. The Nifty 50 Index, which tracks India’s largest companies, is down a sharp 8 per cent since the start of the year.
After all their efforts, one banker on the IPO said they thought it was unlikely that LIC would list before the end of March. However, Sitharaman warned that putting the brakes on could be tricky. Once the Jagganath Rath has arrived at the temple, “it is not easy to hold back the Rath and say, ‘hold on, you can’t enter now!’” Sitharaman said of the IPO, in the same interview.
“So many people have been involved in pulling that Rath. After creating so much excitement and fervour around the Rath, it is difficult to suddenly stop midway.”
chloe.cornish@ft.com
