India eyes Aramco-like IPO for state-owned largest insurer

Photo: Reuters

Prime Minister Narendra Modi’s government surprised investors by saying it will sell part of its stake in the state-run behemoth Life Insurance Corp. of India to meet its record asset-sale target.

Investors likened the proposal to Saudi Aramco, which in December raised about $25 billion in the world’s biggest-ever initial public offering, and overtook Microsoft Corp. and Apple Inc. as the most valuable listed company. India is targeting to sell the stake in the year starting April 1, Tuhin Kanta Pandey, secretary for disinvestment said in an interview.

The “LIC IPO is akin to the Saudi Aramco listing for our capital markets,” said Vijay Bhushan, president of the Association of National Exchanges Members of India. “It will be IPO of the decade.”

Now comes the hard part. LIC, whose total assets of 31 trillion rupees ($434 billion) exceed that of all Indian mutual funds combined, was set up under a special act in 1956. The government will have to amend the law, a process that may delay the sale beyond March 2021 and keep it from meeting its record divestment target of 2.1 trillion rupees.

LIC’s sheer size also makes it hard for the government to sell a big chunk of its holding. Nervousness was palpable on Saturday as shares of private insurers — SBI Life Insurance, General Insurance Corp. of India, HDFC Life Insurance Co. and ICICI Prudential Life Insurance Co. — slumped 6%-14% in a special trading session after the proposal was announced.

“It will become India’s biggest company by market value the day of the listing, given it is the largest company by assets under management,” said Kajal Gandhi, an analyst at ICICI Securities Ltd. in Mumbai. “Even a 10% dilution will be difficult for the market to absorb it in one go.”

The sale can fetch the government between 850 billion rupees to 900 billion rupees should the IPO get done this year, Credit Suisse analysts led by Neelkanth Mishra wrote in a note.

Insurance stocks have been star performers in recent years. SBI Life was among four insurers whose IPOs raised more than $1 billion in 2017, data compiled by Bloomberg show.

Market Support

LIC has been used as an investor of last resort in the past to support the markets by buying shares of state-run companies. It owns double-digit stakes in several publicly traded firms, including Bharat Heavy Electricals Ltd. and Larsen & Toubro Ltd., that are collectively worth more than $80 billion, data compiled by Bloomberg show. Last year, the insurer bailed out IDBI Bank by buying a 51% stake.

The proposal is already facing opposition from the insurer’s staff, the Press Trust of India reported, citing the spokesman of an employees’ union, who said the sale is “against national interest.”

Still, taking LIC public will help instill “discipline” and help unlock value, Finance Minister Nirmala Sitharaman said in her budget speech, without providing details or the timeline for the sale.

“It is good for India and the market as well because once this listing happens there will be greater transparency as far as LIC’s affairs are concerned,” said Joseph Thomas, head of research at Emkay Wealth Management. “Insurance and LIC have been synonymous in our common parlance.”

LIC gave up 44 years of monopoly when India started licensing joint ventures with international insurers such as New York Life Insurance Co. and Prudential Plc in 2000.

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.