India's largest-ever IPO will test foreign investor appetite

The dominant player in India’s life insurance market, Life Insurance Corporation, opens its initial public offering for subscription Wednesday in the country’s largest-ever IPO.

The government is selling a 3.5% stake in state-owned insurance behemoth LIC for an estimated $2.74 billion. The corporation will offer about 22.13 million shares for between 902 and 949 Indian rupees, or the equivalent of $11.78 to $12.39 a share at Tuesday’s exchange rates.

Trusted by millions and with enormous reach across the country, LIC is second only to bank deposits as a haven of savings in India. Between 2019 and 2021, LIC’s share of household financial savings grew 3.4 percentage points to 19.4%. That’s ahead of pension funds’ 16.7% share, while bank deposits dropped 7.1 percentage points to 29.4% during the same period.

LIC had a monopoly in India’s insurance market until 2000 and is still the dominant player, commanding about two-thirds of the life insurance market. In the fiscal year ending March 2021, LIC’s market share stood at 64.14%, down marginally from 66.22% in the previous year.

The IPO, initially planned for February, was postponed because of the Ukraine war and the outflow of institutional funds from the stock market. Since January, about $16 billion of foreign capital has left Indian markets. The size of LIC’s offering, which was initially pegged at 5%, was scaled down to 3.5%.

The company’s current implied valuation of $80 billion is roughly half of what it was in February, falling at least in part due to market conditions. It had previously planned to offer a 5% stake for about $8 billion.

Speaking to CNBC, former chief economic advisor to the government of India, Arvind Virmani, dismissed talk of the IPO being badly timed.

“There is no perfect time for an IPO. Given the high liquidity in international markets it’s as good a time as any,” he said.

Of the shares being offered, 20% is open to foreign investors and 10% is earmarked for policyholders.

LIC, which has an estimated base of 250 million policyholders, is an asset-rich organization. As of March 2021, LIC’s asset base had surpassed $520 billion, with investments of $503 billion and a life fund of $470.70 billion.

Speaking to CNBC, deputy director at Carnegie India, Suyash Rai, said the LIC IPO gives domestic and foreign investors an opportunity to invest in a firm that controls about two-thirds of the life insurance market in India. He said while the listing is a “continuation of a decades old policy of listing public sector financial firms,” LIC still stands out. 

“The complexity and scale of the LIC IPO does signal the government’s intent to go one step further than previous governments,” Rai said.

In an indication of its commitment to reforms in the financial sector, the government last year raised foreign equity in insurance to 74% from 49%.