Govt to review LIC IPO timeline due to volatility - Times of India

Govt to review LIC IPO timeline due to volatility – Times of India


MUMBAI: The government will review the timeline for LIC’s initial public offering (IPO) in the wake of Russia’s invasion of Ukraine and the subsequent volatility in financial markets across the world. “If global considerations warrant that I need to look at it, I wouldn’t mind looking at it again,” finance minister Nirmala Sitharaman, told a business newspaper in an interview, responding to a query on the timing of the LIC listing. She said that the need for the review arose in the wake of the “full-scale war”.
Until now all indications were that the insurance giant’s IPO would proceed on schedule. LIC and the department of investment and public asset management (Dipam) continued to hold roadshows even after the Russian invasion last week.
On Saturday, the Cabinet approved the proposal to allow 20% foreign direct investment (FDI) in LIC — which was a pre-requisite for the IPO considering that a large chunk of the money is set to come from foreign investors.
It was widely expected that the IPO would open between March 7 and 10 as the draft red herring prospectus (DRHP) was filed with the markets regulator on February 13. Adding to the speculation was a currency swap announced by the RBI, which would be conducted on March 8. The currency swap was designed to absorb surplus liquidity in the banking system, which was likely on account of the IPO. Although the government had not disclosed the intended mop-up, given the valuation, the IPO size was estimated to be Rs 65,000-75,000 crore — more than 3.5 times Paytm’s Rs 18,300-crore IPO, which is hitherto the largest.
According to investment bankers, an IPO is typically launched when there is an upswing in the market. While the Indian equity markets were not in a bear phase there was risk aversion among international investors, which had resulted in a net outflow from foreign portfolio investors. While the government was targeting long-term investors, including sovereign funds to anchor the issue, a correction in the markets would hurt sentiment among retail investors. According to the DRHP, 31.6 crore shares would be offered, representing 5% of the equity stake. The offer document also disclosed the embedded value of LIC at Rs 5.4 lakh crore. Even if a conservative 2.5x multiple were applied to the EV, the corporation would be valued at around Rs 13.5 lakh crore, which would result in a 5% mop-up through the IPO.


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