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LIC: Aramco-like mammoth IPO proposed for India’s biggest insurer

04-Feb-2020

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."

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% 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."

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."

“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.

Source : Live Mint

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