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LIC IPO: Price band set at Rs 902-949 per. share to be open to retail investors from 4 to 9 May

Life Insurance Corporation (LIC) has set the price range for its initial public offering (IPO) at Rs 902-949 per share. The issue, which will remain open to retail investors from May 4 to 9, will allow the government to transfer 3.5% of the shares in the insurance company for Rs 21,000 crs, according to an official source.

The insurance company filed the red herring prospectus (RHP) with the Securities and Exchange Board of India (Sebi) late Tuesday.

The listing will still be the largest in the country, even though the issue size is lower than the 5% mentioned by the insurance company in the draft listing securities submitted to the supervisory authority on 13 February. The valuation is also almost half of the level set by the Center in FY22 Budget.

For anchor investors, the issue opens on May 2nd. Another source said thanks to ‘strong demand’ in the form of informal bids from domestic institutional investors, including mutual funds, so the anchor book drew 1.6 times from Tuesday. “However, we saw no point in going for a 5% share sale after seeing the total demand until Tuesday from anchor investors,” the other source added.

The insurance company’s board, which met on Tuesday in Mumbai, also approved a discount of 60 Rs / share to policyholders for whom 22.1 million shares, or 10% of the total offer size, are reserved. The discount is 45 Rs / share for retail investors and employees, and for the latter, 1.5 million shares or 0.68% of the total issue size is reserved.

Net of the two categories – policyholders and employees, 35% – is allocated to retail investors, while 50% is held to qualified institutional buyers (QIBs) and 15% to non-institutional investors. As much as 60% of QIB’s share is reserved for anchor investors.

According to the sources, the minimum bid size for the listing will be 15 shares.

The reduced size of the listing from 5% in the draft offer document and the lower valuation are prompted by feedback from institutional investors and recent capital outflows from the Indian and other emerging markets after the war between Russia and Ukraine.

The valuation of the insurance giant is set at 1.1 times its embedded value of Rs 5.4 trillion, arrived at by Milliman Advisors.

Despite FPIs withdrawing money from Indian and other emerging markets due to lower risk appetite, the government has decided to move forward with the LIC IPO as it did not want to disappoint domestic retail investors, which it feels have been waiting anxiously for the issue. By selling only 3.5% of the shares in the listing, the government hopes to capitalize on gains in the valuation in a year or so, when it is likely to make a follow-up offer.

The government reckons that the gap between the IPO and the subsequent issue will help the LIC find its true value. The insurance company will also show its business growth potential in the segment for non-participating policies, it believes.

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