India’s $2.7b LIC IPO subscribed 67 per cent on first day of bidding

Life Insurance Corp’s (LIC) $2.7 billion IPO, India’s largest public issue, was subscribed 67% on the first day of bidding, even as a surprise rate hike by the central bank roiled markets.

Investors bid for 108.7 million shares on Wednesday, compared with the total 162.1 million shares on offer, with the portions reserved for employees and policyholders already oversubscribed, exchange data showed.

The demand for LIC’s IPO came even as the stock market fell 2.3% after the Reserve Bank of India unexpectedly hiked interest rates to tame inflation.

“Considering the size of the issue, the demand seems to be quite good,” said Yesha Shah, head of equity research at Samco Securities. “While the RBI rate hike has affected the market sentiment overall, we think it will have a limited impact on the LIC IPO... because of the company’s decent fundamentals, attractive pricing and valuation.” The Indian government expects to raise up to $2.7 billion, just a third of its original target, from selling a 3.5% stake in the country’s top insurance company, giving it an initial value of $78.52 billion.

The subscription, set to close on May 9, is offering a discount to employees and retail investors of 45 rupees per share. LIC policyholders will be offered a discount of 60 rupees per share.

“There could be some impact on listing gains, but we still feel the IPO will fly through. The real test will be on Thursday when we should see the entire impact of the rate hike in markets,” Shah said.

The portion set aside for policyholders was subscribed 1.99 times at the end of bidding on Wednesday, employees by 1.17 times and retail investors by 0.6 times.

“Compared to private players, LIC’s targeted valuation at 1.1 times its embedded value offers a significant discount, which will be a comfort for investors,” said Sneha Poddar, research analyst at Motilal Oswal Financial Services.

The price range for the issue has been set between 902 rupees and 949 rupees per share.

After a reservation for employees and policyholders, the remaining shares will be allocated in a ratio of 50% to qualified institutional buyers, 35% to retail investors and 15% for non-institutional investors.

LIC shares were trading in the “grey” market at a premium of 95 rupees, around 1,044 rupees apiece.

To drum up demand from retail investors, in addition to heavy advertising in local newspapers, some 1.2 million field agents were dispatched across India to woo many of LIC’s more than 250 million policyholders to buy the shares.

Policyholders were also flooded with text messages earlier this year recommending they open an electronic stock holding account early so they can take part in the IPO.

Earlier this week, the 59.3 million shares set aside for anchor investors were subscribed at 949 rupees apiece. Norwegian wealth fund Norges Bank Investment Management and the government of Singapore joined the anchor book, along with several domestic mutual funds.

The government had initially wanted to list LIC in the financial year that ended March 31 but chose to delay the sale after Russia’s invasion of Ukraine and the US Federal Reserve’s interest rate hikes triggered a market rout.

The 66-year-old company dominates India’s insurance sector, with more than 280 million policies. It was the fifth-biggest global insurer in terms of insurance premium collection in 2020, the latest year for which statistics are available.

Wheat exports: India is not moving to curb wheat exports, the top official at the food ministry said on Wednesday, following an earlier report that the world’s second biggest producer of the grain was mulling restrictions after a heat wave damaged crops.

Food and farm ministry officials said on Wednesday that India can still easily export at least 8 million tonnes of wheat in the current fiscal year that began in April, and that the government would only consider export curbs after any sudden, unexpected surge in overseas shipments.

“There is no move to curb wheat exports, as the country has sufficient stocks of wheat,” Food Secretary Sudhanshu Pandey told Reuters.

Bloomberg reported earlier that India was considering the move after hot weather curbed its production prospects, feeding concern over world supplies sparked by Russia’s invasion of Ukraine, which has driven soaring food inflation.

The report, citing an unnamed source, said top officials were discussing the move and will recommend it to Indian Prime Minister Narendra Modi, who will then make the decision.

India, which has seen five consecutive years of record harvests, has cut its wheat output forecast to 105 million tonnes from a February estimate of 111.3 tonnes as a sudden sharp rise in temperatures in mid-March cut crop yields.

On Tuesday, addressing the Indian diaspora in Germany, Modi said Indian farmers are coming forward to sell wheat on the world market as many countries struggle to meet supplies.