Narendra Modi’s government is expected to raise as much as $8bn from its initial public offering of Life Insurance Corporation of India, as it seeks to ramp up a privatisation drive crucial to financing its expansionary budget.
Bankers working on the deal said they expected the state-run insurer’s IPO to bring in between $6bn and $8bn, the high end of which would more than triple the previous record set in November by the listing of Paytm, the payments platform and group.
The push to take India’s largest insurer public comes at a sensitive time for Modi’s government as it battles to maintain popular support in four state elections and pursues expansive capital expenditures to refuel growth after the pandemic hit India’s economy.
The Bharatiya Janata party-led government had made an ambitious privatisation agenda part of its strategy to fund the current year’s fiscal spending. But after sluggish disinvestment progress towards last year’s Rs1.75tn ($23bn) fundraising goal, the finance minister dialled back earnings from privatisation to just Rs780bn for the current fiscal year. She only expects Rs650bn for next year.
Nitin Bhasin, co-head of equities at Ambit Capital in Mumbai, said the government has “to show their political commitment to investors, to everybody, that they are getting [the LIC flotation] across the line, with a reasonable raise”.
The focus of the deal was “getting a reasonable sum of money, but not the maximum,” he added. The government is expected to float at least five per cent of LIC, one of India’s most recognisable finance brands.
One veteran India capital markets banker on the deal said the $6bn to $8bn range for LIC’s IPO represented a compromise between Delhi’s desire to maximise revenues and limitations imposed by the underperformance of Indian equities.
A recent sell-off has left the benchmark Sensex down 1.5 per cent year to date and 4.6 per cent lower from a peak touched on January 17 that came just shy of the benchmark’s record.
“Given these dynamics, potentially [the government] will sacrifice valuation for a good subscription because there’s going to be egg on their face if it flops or does badly,” the banker said. But he added that the lenders on the deal, which included Goldman Sachs, Bank of America and Citigroup, were expected to try to push the valuation to the upper end of the range or beyond it to $9bn.
Delhi is under pressure to list LIC quickly because of the role of the share sale in the national budget for the coming fiscal year released last week, which will act as a vital plank in Modi’s efforts to fuel continued growth of more than 8 per cent annually.
The government plans to use the money from the IPO to lower the deficit 0.2 to 0.3 per cent, another banker on the deal said, but noted that those revenues must come in before the fiscal year ended on March 31.
Lowering the deficit is critical to keeping India’s sovereign bond yields lower and its cost of borrowing down, ensuring the sustainability of sprawling spending plans laid out in the budget.
An official valuation for LIC will only be available once its prospectus is published. Tuhin Kanta Pandey, India’s divestment secretary, told a conference on Monday that documents would be filed with India’s market regulator this week, in time for an issuance in March.
