India Seen Chopping LIC's IPO Target to $3.9bn

Weak investor sentiment has undermined the Indian government’s plan to reap a financial bonanza by selling a chunk of the Life Insurance Corporation.

The fundraising target that the Modi government was eyeing from the LIC initial public offering has been hacked back to 300 billion rupees ($3.9 billion), according to a government source, who said valuation estimates were hit by a cooler response from investors shaken by the war in Ukraine and rising interest rates.

The IPO is still expected to be the largest ever staged in India, but the reduced goal is a blow for the Modi administration, which hoped to beef up its state coffers by riding a wave of privatisations.

The state insurance behemoth, which is also India’s largest domestic financial investor, is now valued at around 6 trillion rupees, according to the source, who declined to be identified as the IPO discussions were confidential.

Earlier government estimates had called for the insurer to be valued at around 17 trillion rupees.

‘Investors Risk Averse’

“Investors have become very risk averse in the last few months. After roadshows we realised there was no point in putting high valuation upfront. Higher valuation can be discovered post the listing. After all, the government will still hold nearly 95% of the issue,” the source said.

The government plans to sell a stake of just over 5%, he said. Fresh regulatory approval for the listing process would need to be sought but the source did not elaborate. The government had previously said it would sell a 5% stake.

The IPO is likely to be launched in the first week of May, investment banking sources said.

The finance ministry did not immediately respond to an email requesting comment.

The government had previously wanted to list LIC in the financial year that ended March 31 but had to delay the sale after Russia’s invasion of Ukraine triggered a market rout.

The 66-year-old company dominates India’s insurance sector with more than 280 million policies. It was the fifth-biggest global insurer in terms of insurance premium collection in 2020, the latest year for which statistics are available.

Investors have also been concerned that LIC investment decisions, including those in loss-making state companies, could be influenced by government demands.

• Reuters with additional editing by Jim Pollard