On Sunday, LIC filed the draft red herring prospectus (DRHP) in which the government offers to sell a 5% stake in the insurer that could fetch it around80,000 crore (if it is valued at three times the EV).
The Life insurance Corporation’s embedded value (EV) of 5.4 lakh crore – which potentially values the insurer 3-5 times that amount – has been 'well-received' by large investors such as sovereign wealth funds and pension funds ahead of its mega IPO around mid-March, Alok Pande, joint secretary at the Department of Investment and Public Asset Management (DIPAM) told FE. Sovereign wealth funds such as Abu Dhabi Investment Authority, Temasek Holdings and Qatar Investment Authority as well as large pension funds such as the Canada Pension Plan Investment Board and CDPQ (Caisse de dépôt et placement du Québec) have been approached to invest in the IPO, Pande said. On Sunday, LIC filed the draft red herring prospectus (DRHP) in which the government offers to sell a 5% stake in the insurer that could fetch it around
80,000 crore (if it is valued at three times the EV).
Depending on the response from potential large institutional investors, the IPO size could be enhanced to 7.5% in the final offer document. The valuation of the insurer will be known when the price range is announced before the IPO.“Given the business potential and the insurer’s reach, we see LIC’s EV growing at the industry average of 15% per annum in three to five years,” Pande said, referring to the response from potential long-term investors flushed with liquidity and keen to invest in the IPO.
Since Monday, officials of DIPAM, LIC and merchant bankers have been holding virtual road shows with domestic and global investors till 11 pm each day.
LIC has a massive 30 crore policyholders, most of which are participatory policies, meaning policyholders get the most of (95% now and to go down to 90% in due course) of profits. That approach will change after listing as the insurer would enter the non-participatory policy territory (in such policies most of the profit accrues to shareholders) in a big way, which would boost its EV going forward.
Officials are hard-selling the LIC, which has an unmatched presence of 13.5 lakh selling agents across the country. “LIC agents are much more productive even though agency channel expenses are also high. LIC’s volume being so high, it could afford the higher cost,” Pande said. LIC’s commission-to-premium ratio was 5.5%, against the median of 4.4% for the top five private players, according to the DRHP.
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