The LIC IPO may be still some time away but DIPAM is apparently working overtime to make the IPO a success. In the latest development, the government has shortlisted 10 investment banks out of the 16 who bid for the mandate. That paves the way for the next step of filing the draft prospectus for the IPO.
Appointing investment bankers
During the week, the government made an announcement that it had shortlisted 10 investment bankers to manage the LIC IPO. This includes 5 global banks and 5 Indian investment banks. The specific roles of who will play the Book Running Lead Manager and who plays the advisors to the issue are yet to be announced by the government. This is the first step for the investment bankers to start filing draft prospectus for the proposed IPO. That is expected to take place over the next couple of months.
Even before the investment bankers were appointed, government had asked Millman Group to conduct the actuarial valuation of LIC. That is yet to be fully completed, but Millman is one of the most prominent actuarial valuation and consulting firm in the world. DIPAM has announced KFintech, formerly Karvy Computershare, as the registrars to the IPO. Finally, the government will view and take a call on the bids for legal advisors to the issue on 16-Sep. DIPAM, in a nutshell, is on track to complete the basic formalities well in time for IPO.
Why a grand plan is needed?
Obviously, LIC is not any other issue. It is not clear whether the government will sell 5% or more in the IPO. But either ways, the IPO size would be in excess of Rs.75,000 crore. That would be 5 times larger than the largest IPO of Coal India that has ever been handled. There are some obvious inferences. The QIBs will be expected to take the lead, so you can expect 75% allocation to QIBs and just 10% for retail. Also, government will plan a large anchor allotment to ensure that there is comfort level for the investors. Obviously, LIC is going to tap its vast customer base and its army of agents to make the IPO issue a success. It will certainly be a case study and the government needs to make a success of the IPO to even get close to its FY22 divestment target of Rs.1.75 trillion.
Tough questions to answer
LIC is surely going to face some tough questions from institutions. LIC still has 68% market share of NBP, but the fact is that in last 20 years, private players have taken away 32%. In Aug-21, LIC reported fall in net business premiums (NBP), while most private players had strong growth. Government interference in management and investment policy will also be a challenge. Above all, there has been the case of rising NPAs in LIC’s debt holdings and a surfeit of doubtful investments. That will be a lot of tough answering for LIC managers to do.