Initial Public Offering of LIC a boon for retail investors as Moody’s sees it as credit positive


MR Kumar Chairperson of LIC, Tuhin Kanta Pandey, Secretary DIPAM and other dignitaries at the Life Insurance Corporation (LIC) press meet on the announcement of LIC IPO launch, in Mumbai on Wednesday. (ANI Photo)

Benefits will likely remain limited until the government sells a larger stake, allowing external investors to build a more strategic stake in the company, says ratings firm 

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The initial public offering (IPO) of Life Insurance Corporation of India (LIC) has been subscribed 1.03 times till the second day of bidding on Thursday. Policyholders and employees, who are offered discounts, are driving the subscriptions. The policyholders’ portion has been subscribed 3.11 times. The employees’ portion has been subscribed 2.21 times. The country’s largest IPO opened for subscription on Wednesday and will close on May 9.

LIC has set its price band for the Initial Public Offer (IPO) at Rs 902 to Rs 949 per equity share. Policyholders are offered a discount of Rs 60 per equity share, while retail investors and employees are offered a discount of Rs 45 on each share.

Retail investors have subscribed 93 per cent of the shares reserved. However, there has been a muted response in the non-institutional category. Non-institutional category that consists of corporates, individuals, and others has witnessed less than 50 per cent subscription so far.

Examining the impact of India’s state-owned Life Insurance Corporation’s IPO Moody’s Investors Service on Thursday said that the public issue is credit positive for India’s life insurance sector.

LIC IPO, which hit the market on Wednesday, will remain open till May 9. By 10:30 am on Thursday, LIC IPO was subscribed 71 per cent.

Moody’s said, as a listed company, LIC will face more demanding disclosure requirements, resulting in increased transparency over its operations, and encouraging it to prioritize profitability, underwriting, and risk management. This will, in turn, boost its capacity to generate and grow capital internally.

Additionally, their influence could aid operational and distribution efficiencies, for example, by encouraging LIC, whose online distribution is currently limited to its own portal, to negotiate wider online distribution agreements with third parties. This would support LIC’s sales growth, given the increasing importance of digital distribution in the life industry, and the greater geographic reach of online sales, it said.

However, these benefits will likely remain somewhat limited until the government sells a larger stake, allowing external investors to build a more strategic stake in the company, said Moody’s.

According to Moody’s, while LIC complies with the Insurance Regulatory and Development Authority of India’s (IRDAI’s) solvency requirements, its capital adequacy is weaker than that of global life insurance peers. LIC’s shareholders’ equity accounts for less than 1 per cent of total assets, compared with, for example, 4.9 per cent for Ping An Life Insurance Company of China, Ltd.

The country’s privately owned insurers have already been preparing for the prospect of future profitable growth opportunities, as premium growth continues alongside the government reforms of state-owned insurers (which include LIC’s IPO). In FY 2020, 4 of the 24 life insurers raised capital, and more such transactions are expected, as well as more M&A deals and IPOs. These will improve the Indian insurance sector’s capital adequacy and financial flexibility in the months ahead.

Moody’s also expects foreign insurers to continue investing in India’s private insurers where the 49 per cent foreign direct investment limit is much higher than the 20 per cent allowed in LIC. Many global companies already present in India through joint ventures may increase their ownership stakes in their local affiliates.

The price band of LIC IPO has been fixed at Rs 902-949 per share and the government aims to raise over Rs 21,000 crore by selling over 22.13 crore shares or 3.5 per cent of its stake. Stock market experts are bullish on the IPO and the grey market is also giving positive signals.

Ravi Singh, Head of Research, Share India, said in the grey market LIC IPO is trading at around Rs 1200-1250 which is around 25 to 30 per cent higher than the issue price. This is giving confidence to the retail investors to invest in LIC IPO. Singh said anchor investors have already invested Rs 5,620 crore in LIC IPO. There is also a discount for retail investors and policyholders. Retail investors and employees to get the benefit of 5 per cent and policyholders will get the benefit of 7 per cent.

D K Mishra, a stock market expert, said the LIC IPO price band is good where the subscription is going to be very good. “If you see the size of the LIC market coverage, LIC has captured around 65 per cent market share of the total life insurance policies of this country.”

“They have got a huge network of nearly 3,500 branches or satellite office and they have got a huge number of agency agents employed approximately 13.5 lakhs agents are working for the LIC and overall asset size is quite huge,” he said.

Mishra said retail investors who are interested in the equity market and who are willing to go into the real earnings share market it is a good opportunity for them to invest.

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