In Mumbai’s sleek skyscrapers, stubborn bankers are chasing the clock to evaluate a company that has not been valued for decades. Bureaucrats are burning the midnight oil in New Delhi and working through power outages to put together an initial public offering to compete with anyone in Asia this year. And across the interior, front-page newspaper ads are warning more than 250 million policyholders of the chance to own a piece of a company that is almost as old as India after independence.
India has been bracing itself for a huge task for almost two years: preparing the country’s leading insurer – with nearly $ 500 billion in assets and a valuation as high as $ 203 billion – for what its largest share listing could ever do. word. Some bankers have criticized the public offering of Life Insurance Corp. or India, or LIC, described as India’s Aramco moment. As with the Gulf oil giant’s listing of $ 29.4 billion, the world’s largest, LIC’s debut will test the depth of the country’s capital markets and global appetite for its state-owned crown jewel.
Success is far from guaranteed. With about two months to go before the targeted launch, consultants poured over heaps of policy documents to come up with LIC’s built-in value – a key valuation measure. Bankers say global investors are concerned about the autonomy of an institution that is regularly employed to rescue faltering banks and plundering state assets. Local investors are skeptical that the 65-year-old firm could compete against emerging markets.
With a knockout listing, LIC can acquire as much as $ 10 billion from the IPO with a minimum dilution of 5%. This will make it the third largest worldwide involving an insurer. More importantly, it will fuel Prime Minister Narendra Modi’s reputation as a market – oriented reformer ahead of key state elections and help stop a gaping budget deficit.
“If the listing takes place, it could change the worldview of India,” said James Beeland Rogers, who has been investing in emerging markets for several decades and is chairman of Beeland Interests Inc. and Rogers Holdings.
Enlarge a giant
LIC is a household name in India. With 2,000 branches, more than 100,000 employees and 286 million policies, the Mumbai Headquarters Company reaches virtually every corner of the country. The sheer size of LIC exposes the challenges of listing what is effectively a black box.
The insurer releases its balance sheet only once a year, which means that there are no publicly available figures to distinguish its built-in value, combining the present value of future gains 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 wide as deaths, morbidities, expiration and surrender.
Comparisons with peers are difficult. LIC, founded in 1956, follows rules drawn up by a unique parliamentary law rather than the law governing the country’s other insurance firms. In March 2020, LIC’s property holdings were valued internally at about $ 5.8 billion, according to a person with knowledge of the matter, although it is unclear whether this has all been adjusted to current market rates.
LIC plans to submit the draft IPO prospectus in the last week of January, which will provide the built-in value as well as the number of shares for sale, according to people with knowledge of the matter.
“The proper internal valuation, which you would expect to be done almost annually by a company of that size, has not been done,” Nirmala Sitharaman, India’s finance minister, said in an October interview with Bloomberg. said. “The necessities to keep valuations first and proper – and the efforts needed to keep them properly valued – are all being done now.”
Sitharaman has set a March deadline for listing. If investors agree with the $ 203 billion valuation sought by the government, LIC will compete against India’s largest companies – Reliance Industries Ltd. and Tata Consultancy Services Ltd. 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 deliver for them.
Ten bankers who manage the listing have spoken to almost all major funds 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 of Mumbai’s global investors wanted to know if LIC would have greater autonomy from India’s government after the listing. They were initially skeptical, people said, noting that the company was wearing the signs of a slow-moving arm of the business.
With regulators each receiving at least 10 million rupees ($ 135,000) in fees, the actual earnings from the LIC deal would be small if you deprived them of the prestige of delivering what would be the largest share sale in India’s already red-hot market. said the people.
GIC and Blackrock did not respond to requests for comment. CPPIB and Abu Dhabi Investment Authority declined to comment.
But for investors with deep pockets who do not have many places to park their money after China’s technological constraints last year, LIC can still be a good bet. The company has one of the highest assets managed by an insurer worldwide, which owns two thirds of India’s insurance market share.
LIC also has a sovereign guarantee on all payment obligations, which means that it can operate with a thinner capital base than its competitors. With a valuation that is possibly four times higher than AIG, the company can appeal to investors who crave returns and security.
“The Life Insurance Corporation’s IPO is an excellent development, not only for India’s capital markets but also for India’s economic growth,” says Mark Mobius, the veteran investor in emerging markets and founder of Mobius Capital Partners LLC.
He said the list of massive state-owned enterprises such as LIC leads to “an extensive market capitalization of the Indian market, generally with greater liquidity, making it attractive to large investors such as pension funds and donations, not only in India but also in abroad. “
India had a good year for IPOs last year and a solid debut by LIC would only build on that momentum. Listings raised about $ 18 billion in 2021, even with mixed results from some of the more hyped listings, which included Paytm, a digital payment service, and Zomato, a food delivery company.
An All-India Heave
As the deadline approached, India’s labyrinthine bureaucracy became a pressure cooker.
Investment department officials are pulling through the night, double-checking hundreds of applications and opening their doors to let in poor winter sunlight when the New Delhi power grid spends. Bankers work through holiday trips in the Himalayas and the Maldives. LIC executives said they miss birthdays, give up weekends and work through illnesses.
Indians in rural areas rush to ensure they are fit to receive a piece of the pie. LIC began sending SMS explosions to its agents and publishing newspaper ads with the headline: “It’s the best thing in life to be prepared.”
Raj Kumar Shukla, a marketing manager living in Kiraoli, a village in northern India, said a friend warned him of the IPO, which forced him to download an application to put stock indices on to track. He saved 50,000 rupees (about $ 670) and opened a demat account so he could invest in LIC.
“The government will benefit from this listing,” he said. “They can use the money for the development of the nation.”
Modi’s critics set up the disinvestment campaign differently. Anshul Avijit, a national spokesman for the Indian National Congress, the largest opposition party, said in an interview that the IPO boils down to “our critical resources, slowly and gradually, handing over to a select few private hands.” He called the measure “against-arm”.
But unlike Aramco’s 2019 IPO, when Saudi Arabia relied on wealthy citizens to buy shares after global funds succumbed to the kingdom’s high initial valuation, Modi’s government called for a different approach: to as many as 10 % of LIC’s IPO shares to policyholders. across the country.
Giving ordinary Indians a share in LIC may provide political ammunition ahead of regional elections starting next month. Many policyholders are scattered in northern India, where the ruling Bharatiya Janata party hopes to remain in power.
“The prime minister has always said ‘the government has no business to be in business’,” said Gopal Krishna Agarwal, a national spokesman for the BJP. “As a party, as an ideology, we believe in the free market economy. . “
Whether all the pieces come together is someone’s guess. But the potential rewards abound: Nearly half of the IPO can be obtained from individual investors, including teachers, small business owners and parents who save for their children’s college funds.
A homemade brand that has long been recognized in every pocket of India, from mountainous Kashmir to villages in the Andaman Islands, may soon dominate the world.
“I tell all my clients to invest in it,” says Bhagvati Prasad Sharma, one of LIC’s 1.3 million agents.