LIC — All you need to know about the mother of all stock IPOs

A lot of hype and talk is going on around the LIC IPO expected by March, by which India’s national insurer will be listed on the stock exchange and turn out to be the country’s largest listed company.

Hundreds of officials at Life Insurance Corporation (LIC) offices are burning the midnight oil to complete the valuation of the company to ensure it is done in time for its listing on the stock exchange expected.

The government may give up 5-10% stake to raise as much as $10-20 billion from the listing. It has also informed more than 250 million LIC policy holders through newspaper ads and mobile messages that they would be in a position to own a piece of the company, provided they link their PAN card and have a Demat account.

LIC has over 2,000 branches, more than 1.1 lakh employees, besides lakhs of agents and 286 million policies, which have helped it garner two-thirds of the market share in the insurance space.

Formed in 1956 by an act of Parliament, it is backed by a sovereign guarantee, which means that the government will infuse money if need be.

How big is LIC?

According to a Bloomberg report, the valuation process is a gargantuan task considering that it has nearly $500 billion in assets and its valuation is estimated at around $203 billion, making it the country’s biggest ever stock listing, comparable to Saudi Aramco’s $29.4 billion listing.

The sheer size of the company is quite unfathomable and it has not be properly valued till now. It is said that nobody knows the exact value it holds in various forms — policy, equity and property.

Also read: Centre pulls all stops for ‘breath-taking’ LIC IPO

“The due internal valuation, which is required to be done you would presume by a company of that size almost annually, hasn’t been done,” Finance Minister Nirmala Sitharaman had told Bloomberg in October. “The essentials of keeping valuations prim and proper — and the efforts that are required to keep them valuated appropriately — are all being done now.”

A Bloomberg report quoted sources as saying that LIC’s property holdings were valued at about $5.8 billion, though it is not sure whether it was based on current market rates.

But it also noted that since the insurer has been disclosing only its balance sheet once a year, its actual value is not publicly discernible.

Investors’ dilemma

Despite the hype surrounding it, investors are quite wary of the LIC IPO. A number of factors contribute to this, with the government’s interference being a primary source of dilemma.

While the autonomy from government may seem unlikely, another aspect that worries investors is the slow-moving massive bureaucracy behind the insurance giant, that would probably weaken its advantage over younger competitors.

Following the IPO spree of 2021 which saw young companies raise as much as $18 billion — some of which however caused huge loss to investors due to a quick fall in price — apprehensions remain high.

The government is making efforts to amend the LIC Act to enable foreign investors, who could invest in other insurance companies till now, to hold LIC shares.

On the other hand, having a huge customer base comes with its risks too as investors need to take into account factors such as mortalities, morbidities, lapses and surrenders, in the wake of the repeated bouts of Covid pandemic that has hit the world.

According to independent observers, the move to list LIC on stock exchange or even sell as low as 5% stake in it by the government could spell a similar loss to policy holders as compared to earlier times, making it less attractive investment article for them.