InvestorQ : What exactly is the fate of the LIC IPO? Why has an official word not come out yet?
Moii Chavate made post

What exactly is the fate of the LIC IPO? Why has an official word not come out yet?

Tisha Malhotra answered.
12 months ago

The two big announcements that are expected in the next couple of days are on the LIC IPO front and on the petrol and diesel prices. The government is just biding time as these are sensitive announcements. But the way I look at it, the LIC IPO is already postponed to the next fiscal year FY23 for all practical purposes. There are some strong reasons, I believe, that the LIC IPO is just not feasible at this point of time. Let me explain.

· LIC IPO will heavily depend on foreign portfolio investors (FPIs). With FPIs selling more than $30 billion in last 5 months, the scenario is not ideal for a mega IPO.

· The problem for the government is that the margin for error is too small. LIC IPO will be 3.5 times the size of the Paytm IPO. There is no room for any mistakes here.

· The last day may have effectively and practically passed. Even if the government takes a risk and announces the IPO, it would be tough to complete the IPO process in 2 weeks.

· As per indicative valuations, LIC will be the second most valuable insurer in the world. At such rich valuations, it will be a challenge when Nifty is already 16% from the highs.

· Retail investors and HNIs are likely sitting on big losses and may not have the appetite for taking up fresh investments in LIC unless some of their losses are recouped.

· One concern for the government is the risk-off sentiment in markets, thanks to the Ukraine Russia war. It is tough to sell an IPO when preference is for USD and Gold.

· SEBI approval may be a formality but is yet to come. There is little time for pre-IPO placements and anchor allocation. Limited time may not permit meticulous planning.

So, bottom line, will this have a negative impact. The issue is of accounting so it is not a kind of make-or break for the government. These are not normal times and abnormal times need abnormal solutions. The postponement would mean, India would be awfully short of its disinvestment target. However, that is more for an academic discussion. The need of the hour is to put off the LIC IPO to FY23. Eventually, that announcement will come shortly.