Behind-The Scenes Preps For LIC IPO, India’s Biggest-Ever

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Finance Minister Nirmala Sitharaman has set a March deadline for LIC enlistment.

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In the sleek skyscrapers of Mumbai, annoying bankers run clockwise to evaluate a company that has not been evaluated for decades. Bureaucrats have set fire to midnight oil in New Delhi, working through power cuts to consolidate an initial public offering to compete with any rival in Asia this year. And across the background, front-page newspaper ads warn more than 250 million policymakers about the possibility of owning a stake in a company almost as old as independence-North India.

For almost two years, India has been preparing itself for a huge task: preparing the country’s leading insurer – with assets of about $ 500 billion and an estimated value of up to $ 203 billion – which could become its largest stock list. Some bankers have described the public offer of Life Insurance Corporation of India, or LIC, as India’s Aramco Moment. Like the Gulf oil giant’s $ 29.4 billion list, the world’s largest, LIC’s debut will test the depth of the country’s capital market and the global appetite for state-owned crown jewels.

Success is far from certain. For nearly two months since the targeted launch, consultants have been pouring in policy documents to bring LIC’s embedded value – a key valuation metric. Bankers say investors around the world are concerned about the autonomy of an organization that regularly puts pressure on services to rescue angry banks and plunder state assets. Local investors are skeptical that the 65-year-old firm could compete against the up-and-coming.

In a knock-out list, LIC could raise 10 10 billion from an IPO with a minimum 5% reduction. This would make it the third largest in the world involving an insurer. More importantly, it will tarnish the image of Prime Minister Narendra Modi as a market-oriented reformer before the main state elections and help fill the empty budget deficit.

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“If listed, it could change the global picture for India,” said James Bland Rogers, who has been investing in emerging markets for decades and is chairman of Bland Interest Inc. and Rogers Holdings.

Shape up a monster

LIC is a family name in India. With 2,000 branches, more than 100,000 employees and a policy of 286 million, the Mumbai-headquartered company has reached virtually every corner of the country. The sheer size of the LIC raises the challenge of effectively listing what a black box is.

The insurer publishes its balance sheet only once a year, which means there is no universally available number to understand its embedded value, which combines the current value of future profit with the net worth of the asset. Milliman and Ernst & Young executives will oversee the evaluation for a wide range of parameters, such as death, illness, delusion and surrender, through policy stacking.

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Hard to compare with peers. LIC, which was established in 1956, follows the rules laid down by a unique parliamentary law rather than the law governing other insurance companies in the country. As of March 2020, the intrinsic value of LIC’s asset holdings was approximately $ 5.8 billion, according to one person familiar with the matter, although it is not clear if all of this was adjusted to current market rates.

LIC plans to file a draft IPO prospectus in the last week of January, which will provide the embedded price as well as the number of shares for sale, according to people familiar with the matter.

In an interview with Bloomberg in October, Indian Finance Minister Nirmala Sitharaman said: “The requirements for keeping the assessment initial and accurate – and the efforts needed to evaluate them properly – are all being done now.”

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Sitharaman has set a March deadline for the list. If investors agree to the $ 203 billion valuation sought by the government, LIC will compete against India’s largest company – Reliance Industries Limited and Tata Consultancy Services Limited. The IPO will be responsible for the $ 23.5 billion asset-sales target required to be plugged in. India’s growing budget deficit is projected at 6.8% this year.

LIC declined to comment.

Investors want answers

Another challenge is to convince foreign investors that LIC will provide for them.

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Ten bankers managing the list have spoken to almost all major funds interested in buying shares, including GIC Ray, the Canada Pension Plan Investment Board, BlackRock Inc. and the Abu Dhabi Investment Authority, according to people familiar with the matter.

Many global investors in Mumbai wanted to know if LIC would get more autonomy from the Indian government after the listing. They were initially skeptical, with people saying that the company bears the brunt of the organization’s slow hand.

With each of the managers charging a fee of at least Rs 1 crore ($ 135,000), the actual earnings from the LIC transaction would be smaller if you snatched the distribution privilege that would sell the largest share already in the red-hot market in India, some said.

GIC and BlackRock did not respond to a request for comment. CPPIB and Abu Dhabi Investment Authority declined to comment.

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But for deep-pocketed investors who don’t have much room to keep their money after China’s technology embargo last year, LIC could still be a good bet. The company has one of the highest assets managed by an insurer worldwide, owning two-thirds of the Indian insurance market.

LIC also has a sovereign guarantee over all its payment obligations, which means it can operate with a thinner capital base than its competitors. With a potential four times higher valuation than AIG, the company can appeal to investors for returns and security.

“Life Insurance Corporation’s IPO is an excellent development not only for the Indian capital market, but also for India’s economic growth,” said Mark Mobius, a veteran emerging-market investor and founder of Mobius Capital Partners LLC.

He said the listing of large state-owned enterprises like LIC “makes an increased market capitalization in the Indian market generally with greater liquidity, making it attractive to large investors not only in India but also abroad, such as pension funds and scholarships.”

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India had a bumper year for IPOs last year and a strong debut for LIC will only make that momentum. The lists raised about $ 18 billion in 2021, with mixed results from even more hyped entries, including Paytm, a digital payment service and Zomato, a food distribution startup.

An all-India paradise

As time draws to a close, India’s labyrinthine bureaucracy has become a pressure cooker.

Investment department officials have been dragging on overnight, double-checking hundreds of filings and opening their doors to provide weak winter sunlight when the power grid in New Delhi comes out. Bankers are working through holiday trips to the Himalayas and the Maldives. LIC officials say they are missing birthdays, taking weekends off and working through illness.

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Rural Indians are rushing to confirm their eligibility for a piece of pie. LIC has begun sending SMS explosives to its agents and publishing newspaper advertisements with the headline: “Getting ready is the best thing in life.”

Raj Kumar Shukla, a marketing manager who lives in Kiraoli, a village in northern India, said a friend alerted him to the IPO, which forced him to download an app to track stock indices. He has saved Rs 50,000 (about 70 670) and opened a demat account so that he can invest in LIC.

“The government will benefit from this list,” he said. “They can use the money for the development of the country.”

Critics of Modi have shaped the investment drive differently. Anshul Abhijit, a national spokesperson for the Indian National Congress, the largest opposition party, said in an interview that the IPO meant “the transfer of some of our important resources, slowly and gradually, to some private individuals.” He called the measure “anti-poor.”

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But in contrast to Aramco’s 2019 IPO, when global funds tended to buy stocks from wealthy Saudi citizens after the state’s upper initial valuation was hampered, the Modi government lobbied for a different approach: offering up to 10% of LIC’s IPO shares to policyholders across the country. .

Giving ordinary Indians a stake in LIC could provide political ammunition ahead of next month’s regional elections. Many policymakers are scattered across northern India, where the ruling Bharatiya Janata Party hopes to stay in power.

BJP national spokesperson Gopal Krishna Agarwal said, “The prime minister has always said ‘business is not the business of the government’,” as a party, we believe in free market economy as the norm. “

One wonders if all the pieces will come together. But the potential rewards are huge: about half of the IPOs can be raised from private investors, with teachers, small business owners and parents saving for their children’s college funds.

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From hilly Kashmir to villages in the Andaman Islands, a long-recognized indigenous brand in every pocket of India, could soon make an impact around the world.

“I urge all my clients to invest in it,” said Bhagwati Prasad Sharma, one of LIC’s 1.3 million agents.

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