LIC IPO: 20 Lakh Rejected Applications Reflect Long Road To Reform For SEBI

Life Insurance Corporation of India’s initial public offering saw more than 20 lakh applications being disqualified, indicating a need for the market regulator to review the bidding process.

India’s biggest insurer received a total of 73.37 lakh applications at close of its six-day initial public offering on May 9. But according to the basis of allotment document released by the company, complete and valid applications were 61.33 lakh.

But that's not the final number with bids being rejected for technical reasons. Taking that into account, the total number of valid applications fell to 52.98 lakh. It's still the highest for any IPO in India but 20.39 lakh fewer than initially accepted applications. Which means, 27.8% of the applications were rejected on various grounds.

Bankers BQ Prime spoke with said a large number of bids were rejected due to applicants not completing the 'application supported by blocked amount' and Unified Payments Interface processes.

The Securities and Exchange Board of India aimed at streamlining the payment process through the UPI and ASBA for shares applied for and allotted during an IPO. But it’s likely that the system is generating artificial demand.

This issue was highlighted to the Department of Investment and Public Asset Management during the LIC IPO when the government received feedback from the registrar and transfer agent.

Investors—retail and some of the qualified institutional buyers—were using the UPI route to bid for the IPO, which was reflected in the bids on the stock exchanges, but were not backed by funds blocked in banks. In market parlance, it's called “bidded but not banked”.

That led to rejection of applications.

Bankers told BQ Prime on the condition of anonymity that the issue can be resolved once the IPO timeline moves from T+6 to T+3.

Retail investors bid through 35.11 lakh applications, while over 25.23 lakh came through policyholders. LIC chairman had indicated that close to 2 crore policyholders had their PAN registered along with policy, which made them eligible to apply under the policyholder category. The company was not sure how many of these had opened or had existing demat accounts.

The retail portion was subscribed 1.61 times after accounting for technical rejections and over 32.75 lakh retail investors were allocated shares. Over 72.7% of the valid retail application received a minimum lot of 15 shares.

10.90% of retail applicants, who applied for 30 days or two lots, received 19 shares.

The policyholder category was subscribed 4.37 times after accounting for technical rejections. Of the total valid 19.54 lakh policyholder applications, the company allotted shares to 9.19 lakh.

Nearly 81% of the total policyholders received at least 15 shares or 36% of the retail quota, according to the basis of allotment document. That means policyholders who applied for up to 60 shares got at least 15 shares.

The data also showed that 40.72% of the policyholder quota went to 9.65% of the applicants who bid for the full 210 shares eligible under the category.

Based on this data, the overlap between retail, policyholders and employees stood at 2.4 lakh, who applied under more than one category.