Editorial: Mega public issue
Billed as the mother of all IPOs, the upcoming public offer of the Life Insurance Corporation (LIC) could prove crucial for the government’s efforts to meet the disinvestment targets. However, there seems to be no appetite for such mega issues as it comes amid challenging times with markets being volatile and foreign portfolio investors (FPIs) […]
Billed as the mother of all IPOs, the upcoming public offer of the Life Insurance Corporation (LIC) could prove crucial for the government’s efforts to meet the disinvestment targets. However, there seems to be no appetite for such mega issues as it comes amid challenging times with markets being volatile and foreign portfolio investors (FPIs) pulling out from Indian stocks in the wake of the Federal Reserve tightening the rates. While the public offer may be part of efforts to liberalise the insurance sector, the listing on the exchanges will open LIC’s governance structures and investment decisions to public scrutiny and continued government interference in its decision making will affect the corporation’s prospects in the future. While the initial public offering is for 31.6 crore shares, amounting to 5% of the stake, it is likely that the government will sell more shares over time. As per the Draft Red Herring Prospectus filed by the public sector behemoth with the Securities and Exchange Board of India (Sebi), its embedded value — a measure of the consolidated shareholders” value in an insurance company — has been estimated at Rs 5.39 lakh crore. While the offer price is yet to be disclosed, insurance companies typically tend to trade at a multiple of their embedded value. Thus the IPO will likely dwarf the recent Paytm offering, which had shattered the record for the largest offering. A successful fructification of the IPO by March would help the government achieve its scaled down disinvestment target of Rs 78,000 crore of which it has only been able to garner Rs 12,030 crore so far.
The LIC is not only the world’s largest when it comes to home-market share with over 64.1% of the total gross written premium as of 2020 but also the one that offers the highest return on equity. For the cash-starved government, the LIC disinvestment is a huge step as it hopes to raise nearly $12 billion from selling a stake in the IPO and expects the proceeds will help it bridge the deficit gap this fiscal year. While the offer price is still undisclosed, the challenge lies in making the sale attractive at a time when investors globally are on the edge about US monetary tightening and the risk of war in Ukraine. There are concerns about the capacity of the market to absorb such a large offering. Questions are also being raised over corporate governance issues. In the past, the LIC has often been used by the government to serve its own ends. There are legitimate concerns that its investment decisions may continue to be guided by other motives. The government should not lose sight of the fact that the LIC is a custodian of the policy holder’s money. It must resist the temptation of using its coffers for its own purpose.
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