Is it likely that the LIC may end up selling more than 5% in its forthcoming IPO?

With the March 12th deadline fast approaching, a recent Bloomberg report has suggested that the government may settle for a higher stake sale and a lower valuation for the proposed IPO of LIC. This is more so considering the changed macro conditions in the aftermath of the Russia Ukraine war and the resultant FPI selling and oil price spike. The government will now seek around Rs.50,000 crore by selling about 7% stake in the IPO.

That would certainly tantamount to lowering the valuations of LIC to begin with and reducing the multiples over the actuarial valuation. The new logic would approximately peg the overall valuation of LIC at around $94 billion, which is materially lower than what the government was expecting at the time of filing the DRHP. The big challenge for the government now is to complete the IPO finalization before 12th May.

The reason is that the current filing approval accorded by SEBI expires on 12th May. If the IPO is not announced before that date, the government has to seek fresh actuarial valuation for LIC. As we saw last time, that is a long drawn process. LIC has already completed the other task of filing updated financials for Dec-21 quarter with SEBI. So it looks like the government may push its IPO through by middle of May 2022.

Let us look at how the valuations may have been lowered. As per DRHP, the plan was to sell 31.60 crore shares (5% in LIC) to raise Rs.60,000 crore. That assigned an overall valuation of $159 billion to LIC. According to Bloomberg, the government may not plan to raise just Rs.50,000 crore by offering 7% stake pegging LIC value at about $94 billion. This lowering of the valuation metrics has been necessitated by FPI outflows amidst Russian war.