Capital markets regulator Securities and Exchange Board of India (SEBI) has issued observations regarding the much-awaited initial public offering (IPO) of Life Insurance Corporation of India (LIC). In the regulator’s parlance, observation issued refers to final approval to the draft documents filed with it by a company looking to float its IPO.
As per the documents released by SEBI on Monday, the final approval came last week on March 8, 2022. LIC had filed its draft red herring prospectus (DRHP) with SEBI on February 14, 2022. This is one of the fastest DRHP approvals, coming in only 24 days after the draft papers were filed.
SEBI usually issues observations on a draft document within 30 days, given that certain conditions are met. This includes the required approvals, as well as satisfactory responses to additional information demanded by the regulator. SEBI can keep issuance of observations in abeyance for a period of 30 days, 45 days, 90 days or more.
With the DRHP cleared, Centre’s disinvestment department can move to file the RHP and price band for the issue.
However, the central government, which currently is the largest stakeholder in the insurance behemoth, is likely to put the IPO on ice for sometime in view of the extreme market volatility caused by the ongoing Russian aggression against its neighbour, Ukraine. The conflict has put the global as well as domestic markets in a bear grip.
Some merchant bankers have even written to the government to postpone the IPO as the prevalent conditions are not conducive for a successful issue. Last week on Friday, a group of ministers, including finance minister Nirmala Sitharaman, commerce minister Piyush Goyal and transport minister Nitin Gadkari, held a meeting on LIC IPO timing.
The government has till May 12 to float an IPO, a government official told a news agency. Failing to open the issue by this date will require the process to secure SEBI’s approval for the issue to be started anew.
The LIC IPO is set to be the largest ever in the country, far above the ₹18,300-crore issue by fintech major Paytm. Missing the opportunity to open the IPO will significantly dent Centre’s plans to meet this year’s revised disinvestment target of ₹78,000 crore.
Meanwhile, the Centre is watching the markets before making up its mind on the issue. DIPAM secretary Tuhin Kanta Pandey recently exuded confidence that the IPO will be floated soon.
“We may be good to go and we are watching the market situation. Hopefully, we should be able to bring out the IPO soon,” said Pandey during a recent industry interaction.
"There are certain external factors affecting the markets because of the conflict in Europe and the government is watching the situation carefully," he added, without giving a concrete timeline for the LIC IPO. “We hope things will recover, oil prices will probably cool off and our hope is that volatility in the market will come down as the markets will come down with the new realities.”
Last week, LIC posted its financial results for the quarter ended December 31, 2021, reporting a net profit of ₹234.91 crore. It had registered a profit of ₹94 lakh in the year-ago period. For the nine months up to December 2021, the IPO-bound insurance PSU reported a net profit of ₹1,671.56 crore, as opposed to ₹7.08 crore in the corresponding period of the previous fiscal. Total income for the December quarter stood at ₹261.24 crore from ₹1.57 crore in the year-ago period.
First year premiums stood at ₹8,748.55 crore during December quarter of FY22, compared to ₹7,957.37 crore in the same quarter of the previous year. Renewal premiums came to ₹56,822.49 crore, up from ₹54,986.72 crore in the December quarter of last fiscal. Single premiums went up to ₹32,190.15 crore from ₹34,063.96 crore. Total premium inched higher to ₹97,761.20 crore at the end of December quarter in FY22, from ₹97,008.05 crore.
As on December 31, 2021, total cash reserves, including cheques, drafts and stamps, rose to ₹1,228.17 crore from ₹2.12 crore.
LIC had a 66.2% market share in terms of new business premium (NBP), 74.6% in terms of number of individual policies issued, 81.1% in terms of number of group policies issued, and a 55% market share in terms of individual agents as of September 30, 2021.
Kotak Mahindra Capital Company, Axis Capital, BofA Securities India, Citigroup Global Markets India, JM Financial, J.P. Morgan India, Goldman Sachs (India) Securities, ICICI Securities, Nomura Financial Advisory and Securities (India) and SBI Capital Markets are the book running lead managers (BRLMs) to the issue.