The Stunning Scale of India’s Biggest IPO Ever

(Bloomberg) -- State-owned Life Insurance Corp. of India, with its distinctive blue and yellow logo, is ubiquitous across the country of 1.4 billion people. LIC controls nearly two-thirds of the Indian market, with about 282 million policies and more than 1.3 million agents, 100,000 employees, 2,000 branches and 1,500 satellite offices. Prime Minister Narendra Modi’s administration kicked off an initial public offering of LIC in May in what’s set to be India’s biggest-ever listing and the world’s fourth-largest this year so far. Its sheer scale presents a unique challenge for the nation’s underdeveloped capital markets, and a big test of Modi’s plan to make the economy more efficient. 

1. Why is the government selling a stake?

The IPO is the biggest chunk of a $10.4-billion asset-sale program designed to plug India’s budget deficit. The government plans to push borrowing to a record as it tries to spend its way out of a Covid-19-induced downturn, and as rising fuel prices force it to spend more on subsidies. It also paves the way for future sales when cash is needed -- although the government said at the launch it wouldn’t sell another stake for at least a year after the debut. In addition, by forcing the 65-year-old insurer to open its books and making it accountable to public shareholders, the government hopes LIC will be better able to compete with more agile and nimble private insurers.

2. When is the IPO?

The government began taking orders from retail investors on May 4 and the shares are due to begin trading on May 17. The IPO was supposed to happen in the fiscal year to March 2021 but was delayed, first by the pandemic, then by Russia’s invasion of Ukraine in February, which sent markets into a tailspin. The government decided to press ahead after cutting the price and the number of shares on offer. It was set to raise as much as 210 billion rupees ($2.7 billion), well below its earlier target of 500 billion rupees. That would still surpass the biggest Indian IPO to date -- digital payments provider Paytm’s 183 billion rupee-listing last November.  

3. How is the sale being structured?

The government is selling 3.5% of LIC stock. Retail investors will be alloted 35% of those shares in the offer and given a discount of 45 rupees from the IPO price; another 10% was earmarked for LIC’s policyholders, who will receive a bigger discount. The sale already drew in anchor investors including Norway’s sovereign wealth fund and the Singaporean government. 

4. Why is valuing the company so difficult?

LIC’s size and its special status make for a unique challenge. It holds almost $500 billion of assets, more than the total size of the country’s mutual fund industry. Milliman and Ernst & Young, the firms appointed to work on the valuation, have been sifting through millions of policies to account for parameters including mortalities, morbidities, lapses in premium payments and policy cancellations. They also had to weigh the value of LIC’s fixed property across its 2,000 branches. LIC releases its balance sheet only once a year, and peer-to-peer comparisons are tricky. 

4. Why does this IPO matter?

Firstly, because of its size. The company would be worth 6 trillion rupees if the shares are sold at the top of the IPO range. Sales of stakes in companies so deeply entrenched in the history of their nations aren’t an everyday occurrence. LIC has exerted a towering presence over India’s financial landscape since Jawaharlal Nehru’s government combined the country’s 245 insurance companies and provident fund societies in 1956 with a mandate to offer life insurance to all sections of society. For many Indians, insurance is still synonymous with the company, even after the industry opened up to private firms two decades ago. 

5. Are there parallels in other nations?

Some bankers are describing the sale as India’s Aramco moment. Oil giant Saudi Aramco, which staged the world’s biggest IPO in 2019, was likewise a symbol of Saudi Arabia’s economic might, generating almost 90% of the Saudi government’s income. Japan Post, whose privatization started in 2015, was the country’s biggest holder of bank deposits and its largest insurer while it ran the national postal service. Like LIC, it was highly visible, with the biggest chain of storefronts in Japan and a fleet of 86,000 motorbikes for mail delivery. 

6. Will investors go for it?

The success of the IPO will depend on demand from local investors, as foreigners contributed only about 20% of the anchor book. LIC benefits from a 1956 parliamentary act that gives it a special status in the industry, distinct from the law governing its newer rivals. It enjoys a sovereign guarantee of its policies, allowing it to operate with a thinner capital base than competitors. Yet some investors are still skeptical that the business can compete against privately owned insurers. Over the years, it’s been deployed as the investor of last resort by governments to support markets and bail out other state-run companies, as in 2019 with IDBI Bank Ltd. Some bankers say global investors worry LIC could be forced to rescue other floundering state assets even after it becomes a publicly listed company. 

The Reference Shelf

• Bloomberg Opinion’s Andy Mukherjee on the risks for LIC as it shifts to a more investor-driven business model.
• Bloomberg Intelligence sums up the IPO’s prospects of success.
• Bloomberg Economics takes a look at India’s efforts to cut the deficit.
• QuickTake explainers on India’s election and Saudi Aramco’s record IPO.
• The LIC website has a history of the company, and of insurance, along with its annual report.

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