In the sleek skyscrapers of Mumbai, busy bankers race against time to appraise a company that hasn’t been valued for decades. Bureaucrats are burning midnight oil in New Delhi, working through blackouts to stage an initial public offering to rival any offering in Asia this year. And across the hinterland, front-page newspaper advertisements are alerting more than 250 million policyholders to the possibility of owning part of a company almost as old as post-independence India.
For nearly two years, India has prepared for a gargantuan task: preparing the country’s top insurer – with nearly $500 billion in assets and an estimated valuation of $203 billion – for what could become its largest stock market listing. Some bankers have described Life Insurance Corp’s public offering. of India, or LIC, like the Indian Aramco Moment. As with the $29.4 billion listing of the Gulf oil giant, the world’s largest, LIC’s debut will test the depth of the country’s capital markets and the global appetite for its gem of the state-owned crown.
Success is far from assured. With about two months to go until the targeted launch, the consultants sifted through tons of policy documents to find the intrinsic value of LIC – a key valuation metric. Bankers say global investors are worried about the autonomy of an institution routinely brought into service to rescue faltering banks and troubled state assets. Local investors are skeptical of the 65-year-old company’s ability to compete with newcomers.
A knock-out listing could allow LIC to raise up to $10 billion through the IPO with a minimum dilution of 5%. This would make it the third largest in the world involving an insurer. More importantly, it would bolster Prime Minister Narendra Modi’s reputation as a market-oriented reformer ahead of key parliamentary elections and help close a gaping budget gap.
“If the listing takes place, it could change the overall image of India,” said James Beeland Rogers, who has been investing in emerging markets for a few decades and is the chairman of Beeland Interests Inc. and Rogers Holdings.
measure a giant
LIC is a household name in India. With 2,000 branches, over 100,000 employees and 286 million policies, the Mumbai-headquartered company covers virtually every corner of the country. The sheer size of LIC lays bare the challenges of enumerating what is effectively a black box.
The insurer only publishes its balance sheet once a year, which means there are no publicly available figures to discern its intrinsic value, which combines the present value of future profits with the net value of assets. . Milliman and Ernst & Young executives overseeing the valuation must sift through stacks of policies to account for parameters as varied as mortalities, morbidities, lapses and surrenders.
Peer comparisons are tricky. LIC, which was founded in 1956, follows the rules set by a single parliamentary act rather than the law that governs other insurance companies in the country. As of March 2020, LIC’s real estate was internally valued at approximately $5.8 billion, according to someone knowledgeable, although it’s unclear if all of this has been adjusted to current market rates.
LIC plans to file the draft IPO prospectus in the last week of January, which will provide intrinsic value as well as the number of shares to sell, according to people familiar with the matter.
“The required internal assessment, which must be done almost every year by a company of this size, has not been done,” Nirmala Sitharaman, India’s finance minister, said in an October interview with Bloomberg. “The essentials of keeping ratings correct and correct – and the efforts to keep them properly rated – are all underway now.”
Sitharaman has set a March deadline for registration. If investors agree with the $203 billion valuation sought by the government, LIC would be in competition with India’s largest companies – Reliance Industries Ltd. and Tata Consultancy Services Ltd. The IPO would represent the bulk of a $23.5 billion asset sale target needed to plug India’s growing budget deficit, which is expected to be 6.8% this year.
LIC declined to comment.
Investors want answers
Another challenge is to convince foreign investors that LIC will bring them.
Ten bankers managing the listing have spoken with nearly every major fund that may be interested in buying shares, including GIC Re, Canada Pension Plan Investment Board, Blackrock Inc. and Abu Dhabi Investment Authority, according to people familiar with the matter.
Many globe-trotting Mumbai investors wanted to know if LIC would have more autonomy from the Indian government after listing. They were initially skeptical, the people said, noting that the company bears the marks of a slow arm of the establishment.
With the arrangers each receiving at least 10 million rupees ($135,000) in fees, the actual revenue from the LIC transaction would be miniscule if you took away the prestige of delivering what would be the biggest sale of shares in the already scorching market of India, some people said.
GIC and Blackrock did not respond to requests for comment. CPPIB and the Abu Dhabi Investment Authority declined to comment.
But for deep-pocketed investors who don’t have many places to park their money after China’s tech restrictions last year, LIC could still be a good bet. The company has one of the highest assets under management by any insurer in the world, holding two-thirds of the insurance market share in India.
LIC also has a sovereign guarantee on all payment obligations, which means it can operate with a thinner capital base than its competitors. With a valuation potentially four times that of AIG, the company could attract investors looking for yield and security.
“Life Insurance Corporation’s IPO is a great development not only for Indian capital markets, but also for India’s economic growth,” said Mark Mobius, veteran emerging markets investor and founder of Mobius Capital. Partners LLC.
He said the listing of massive state-owned companies like LIC results in “broader market capitalization of the Indian market generally with greater liquidity, making it attractive to large investors like pension funds and non-financial endowments. only in India but abroad”.
Mark Mobius, co-founder of Mobius Capital Partners, poses for a photo following a Bloomberg Television interview in London, UK, Wednesday, May 15, 2019. (Photo: Bloomberg)
India had a bumper year for IPOs last year and a strong start for LIC would only build on that momentum. Listings raised around $18 billion in 2021, even with mixed results from some of the highest-profile entries, which included Paytm, a digital payment service, and Zomato, a food delivery startup.
An All India Uprising
As the deadline approaches, India’s labyrinthine bureaucracy has become a pressure cooker.
Divestment Department officials work sleepless nights, check hundreds of documents and open their doors to let in the dim winter sunlight when New Delhi’s power grid fails. Bankers work through vacation trips to the Himalayas and the Maldives. LIC leaders said they were missing birthdays, giving up weekends and working on illnesses.
Rural Indians rush to ensure their eligibility for a slice of the pie. LIC began texting its agents and publishing newspaper ads with the headline, “It’s better in life to be prepared.”
Raj Kumar Shukla, a marketing manager who lives in Kiraoli, a village in northern India, said a friend alerted him to the IPO, prompting him to download an app to track stock market indices. He saved 50,000 rupees (about $670) and opened a demat account so he could invest in LIC.
“The government will benefit from this list,” he said. “They can use the money for the development of the nation.”
Modi’s critics framed the divestment campaign differently. Anshul Avijit, national spokesperson for the Indian National Congress, the largest opposition party, said in an interview that the IPO was tantamount to “handing over our critical resources, slowly and gradually, to a select few private hands. “. He called the measure “anti-poor”.
But unlike Aramco’s IPO in 2019, when Saudi Arabia relied on wealthy citizens to buy shares after global funds balked at the kingdom’s high initial valuation, the government of Modi pushed for a different approach: offering up to 10% of LIC’s IPO shares to distributed policyholders. Across the country.
Giving ordinary Indians a share of the LIC could offer political ammunition ahead of regional elections starting next month. Many policyholders are scattered across northern India, where the ruling Bharatiya Janata party hopes to retain power.
“The prime minister has always said ‘government has nothing to do with business’,” said BJP national spokesperson Gopal Krishna Agarwal. “As a party, as an ideology, we believe in the free market economy.”
Whether all the pieces fit together is anybody’s guess. But the potential rewards are plentiful: Almost half of the IPO could come from individual investors, including teachers, small-business owners and parents saving for their children’s college funds.
A local brand that has long been recognized in every pocket of India, from mountainous Kashmir to the villages of the Andaman Islands, could soon have weight around the world.
“I tell all my clients to invest in it,” said Bhagvati Prasad Sharma, one of LIC’s 1.3 million agents.