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HOW BIG IS LIC? THE STUNNING SCALE OF INDIA’S BIGGEST IPO EVER

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Life Insurance Corporation of India's (LIC) headquarters is seen in Mumbai 
(REUTERS)
3 min read . 09:09 AM ISTSuvashree Ghosh,Ronojoy Mazumdar

 * LIC IPO: It is the biggest chunk of the government’s plan to raise 1.75
   trillion rupees ($24 billion) by selling assets



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 State-owned Life Insurance Corp. of India, with its distinctive blue and yellow
logo, is ubiquitous across Asia’s third-largest economy. LIC controls two-thirds
of the Indian market with almost 300 million policies and more than 1.2 million
agents, 100,000 employees, 2,000 branches and 1,500 satellite offices. After a
one-year delay, Prime Minister Narendra Modi’s administration is racing to sell
a stake of 5% to 10% in LIC in what would be India’s biggest-ever initial public
offering. A 10% stake would be the second-biggest IPO ever in the global
insurance industry. One big hurdle ahead is assigning a value to a company with
such a towering presence over India’s financial landscape.

1. Why is the government selling a stake?

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The IPO is the biggest chunk of the government’s plan to raise 1.75 trillion
rupees ($24 billion) by selling assets. The money would be used to narrow
India’s budget deficit, which is forecast to be 6.8% this year. The government
plan includes offering majority stakes in four other state-run firms -- Air
India, Bharat Petroleum Corp., Shipping Corp. of India and Container Corp. of
India.

2. When is the IPO?

The government is aiming for sometime in the first three months of 2022. The IPO
was initially planned for the fiscal year beginning April 1, 2020, but was
delayed as India’s harsh stay-at-home rules during the pandemic interrupted the
pace of IPO work.

3. Why is valuing the company so difficult?

Mumbai-headquartered LIC holds $511 billion of assets, equivalent to the total
size of the country’s mutual fund industry. Milliman and Ernst & Young, the
firms appointed to work on the valuation, will need to sift through millions of
policies to account for parameters including mortalities, morbidities, lapses
and surrenders. They will also need to weigh the value of LIC’s fixed property
across its 2,000 branches. LIC releases its balance sheet only once a year, and
there is no detailed number publicly available to arrive at its embedded value,
the key financial gauge for insurers, which combines the current value of future
profits with the net value of assets. Peer-to-peer comparisons are also tricky.
LIC is governed by a distinct 1956 parliamentary act rather than the law that
governs the nation’s other insurance firms. LIC enjoys a sovereign guarantee of
its policies, giving it a unique selling point and allowing it to operate with a
thinner capital base than its competitors.

4. What could LIC’s value be?

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The government is seeking a valuation of as much as 8 trillion to 10 trillion
rupees ($135 billion). At that level, the sale of even a 5% stake would make it
India’s biggest-ever IPO and a 10% dilution would make it the second-biggest
involving an insurer anywhere in the world. Analysts at Jefferies India have
said LIC’s valuation could be as high as 19 trillion rupees. Other estimates,
including one from RBSA Advisors, put the value in the range of 10 trillion to
11.6 trillion rupees.

World's Biggest Insurer IPOs

5. Why does this IPO matter?

Sales of stakes in companies so deeply entrenched in the history of their
nations aren’t an everyday occurrence. LIC has exerted a towering presence over
India’s financial landscape since Jawaharlal Nehru’s government combined the
country’s 245 insurance companies and provident fund societies in 1956 with a
mandate to offer life insurance to all sections of society. For many Indians,
insurance is still synonymous with the company, even after the industry opened
up to private firms two decades ago. Over the years, it has been deployed as the
investor of last resort by governments of the day to support markets and bail
out other state-run companies, as in 2019 with IDBI Bank Ltd. Using policyholder
money to rescue state-owned firms would probably become a thing of the past if
LIC becomes a publicly listed company.

6. Are there parallels in other nations?

Japan Post, whose privatization started in 2015, was Japan’s biggest holder of
bank deposits and its largest insurer while it ran the national postal service.
Like LIC, it was highly visible, with the biggest chain of storefronts in Japan
and a fleet of 86,000 motorbikes for mail delivery. Oil giant Saudi Aramco,
which staged the world’s biggest IPO in 2019, was likewise a symbol of Saudi
Arabia’s economic might, generating almost 90% of the Saudi government’s income.

7. Will investors go for it?

While the sheer size of the offering could crowd out smaller listings and dent
secondary market appetite, the massive amount of liquidity currently kicking
around in global financial markets could help the IPO sail through. Companies
have raised about $10.2 billion through IPOs in India so far this year, putting
2021 on track to beat the all-time record of $11.8 billion.



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