Insurance giant Life Insurance Corporation of India filed its draft red herring prospectus with the Securities and Exchange Board of India late on Sunday towards its initial public offering (IPO).
LIC is putting 314.25 million shares out of outstanding 6.325 billion shares, or a nearly 5% stake for sale through the offer.
Finance minister Nirmala Sitharaman had first announced the IPO in her Union Budget announcement in 2020. The government states that it has a 66%, or nearly two-thirds market share in new business premiums with 283 million policies and 1.35 million agents.
Regardless of the response the offer would garner, the proceeds from the IPO would be crucial to meeting the government's ₹78,000 crore disinvestment target for this financial year, which was cut down in this year's Union Budget from the initial more ambitious ₹1.75 lakh crores.
The IPO is being called India's 'Aramco' moment, in reference to Saudi Arabia's Aramco, a behemoth in its own right like LIC, which has a near total control of Saudi Arabia's oil production and reserves, and was owned fully by the Government of Saudi Arabia until its IPO in 2019.
Here are five things that you need to know about the upcoming mega IPO.
1. What is being offered for sale?
According to the DRHP filed with the regulator SEBI, a near 5% stake in the company is being offered for sale.
That's a total of 316,249,885 shares out of 6,324,997,701 equity shares outstanding before and after the offer.
2. What is the embedded value of LIC?
The embedded value of LIC is at ₹5,39,686 crores. The embedded value is a term referring to the present value of future profits, plus the adjusted net asset value of the company.
It is a popular means to provide the corporate value of life insurance companies.
3. At what price will the IPO be issued?
The DRHP does not have these details, though there are external estimates for the same.
However, most life insurance companies trade at nearly three to four times their embedded value.
LIC's existing competitors, HDFC Life Insurance, SBI Life and ICICI Prudential Life Insurance are trading at around 3.4 times their embedded value.
According to an analysis done by Moneycontrol, a multiple of 2 would prompt an issue size of nearly 53,500 crores at a price of ₹1,693 per share. At 2.5 times, it would be ₹66,875 crores at ₹2,116 per share. At 3 times, it would be ₹80,250 crores priced at ₹2,540 per share and ₹2,963 per share with an issue size at ₹93,625 crores at a multiple of 3.5 times.
4. What would LIC's market cap look like?
All estimates may vary in their technicalities, but they point at the fact the LIC would be catapulted into the big league of companies on Indian exchanges.
At a multiple of 2, which is the lower end, the market cap is priced at ₹10.7 lakh crores. That would be more than HDFC Bank (with a market cap of ₹8.16 lakh crore) but less than that of IT major Tata Consultancy Services (₹13.81 lakh crore) on the National Stock Exchange, taking into consideration the closing prices of these stocks on Monday.
At a multiple of 3.5, it would be ₹18.73 lakh crores. That would make LIC the largest company in India in terms of market capitalisation, ahead of Reliance Industries which is currently at ₹15.81 lakh crores on the NSE.
One estimate puts LIC's likely market cap to be ₹22 lakh crores.
5. What do we know about policyholder and employee quotas?
The DHRP does not outline the subscription quota for its employees, retail subscribers and policyholders.
However, some estimates say that there will be a 10% quota. Even the DHRP says, "The Policyholder Reservation Portion shall not exceed 10.00% of the Offer size".
A similar note exists for employees with a 5% cap.
Both quotas may also be eligible for a potential discount, which will be announced at least two working days prior to the offer.
To be eligible for the policyholder quota, one needs to link PAN and ensure a demat account and an updated know-your-customer (KYC) to participate fully in the quota, and LIC has prompted its customers to do so before.
The NIFTY 50, the benchmark index of the NSE, fell more than 3%, or 531.95 points, to 16,834 points on geopolitical cues.