In the elegant skyscrapers of Mumbai, reckless bankers race against the clock to value a company that hasn't been valued for decades. Bureaucrats burn oil at midnight in New Delhi, working through blackouts to combine an initial public offering to compete with anyone in Asia this year. Across the country, front-page newspaper advertisements alert more than 250 million policyholders to the opportunity to own a piece of a company as old as post-independence India.
For nearly two years, India itself has wrestled with a monumental task: equipping the country's number one insurance company, with roughly $500 billion in assets and an estimated $203 billion, for what could become the largest stock listing in its history. Some bankers have described the public offering of India's Life Insurance Corp., or LIC, as India's Aramco moment. As with the IPO of the $29.4 billion Gulf oil giant, the world's largest, LIC's debut will test the depth of the country's capital markets and the global appetite for the jewel of the state-owned crown.
Success is far from certain. With nearly two months to go before the target launch, advisers have been reviewing large packages of policy documents to determine the value of embedded LIC, a key rating metric. Bankers say global investors are concerned about the independence of an institution that is regularly forced to provide services to bail out failing banks and troubled state assets. Local investors are skeptical about the 65-year-old company's ability to compete with new entrants.
The listing on LIC could raise up to $10 billion from the initial public offering with a minimum dilution of 5%. This will make it the third-largest insurance company in the world. More importantly, it will burnish Prime Minister Narendra Modi's reputation as a market-oriented reformer ahead of key state elections and help close the budget deficit gap.
"If the listing happens, it could change the global image of India," said James Beeland Rogers, who has been investing in emerging markets for a few decades and is chairman of Beeland Interest Inc and Rogers Holdings.
Sizing up a Giant
LIC is a household name in India. With 2,000 branches, more than 100,000 employees, and 286 million policies, the Mumbai-based company reaches virtually every corner of the country. The sheer size of LIC reveals the challenges of saying what a black box actually is.
An insurance company publishes its balance sheet only once a year, which means there are no publicly available numbers to discern its implied value, which combines the present value of future earnings and net asset value. Milliman and Ernst & Young executives overseeing the evaluation must sift through reams of policies to account for broad criteria such as death, illness, fall, and surrender.
Comparisons with peers are difficult. Founded in 1956, LIC follows the rules established by a single Act of Parliament rather than the law that governs other insurance companies in the country. As of March 2020, LIC holdings were internally valued at $5.8 billion, according to a person familiar with the matter, though it's unclear if all of this has been adjusted to current market rates.
LIC plans to file a draft prospectus in the last week of January, which will provide the included value as well as the number of shares for sale, according to people familiar with the matter.
The Stunning Scale of India’s Biggest IPO Ever: QuickTake
Finance Minister Sitharaman says India will give advance funds to countries
Nirmala Sitharaman, India's finance minister, speaks during a press conference at the National Media Center in New Delhi, India, on Monday, November 15, 2021. India will bear part of the transfer of taxes to states to help them increase state spending. Sitharaman said after a meeting with top state ministers.
“The proper internal valuation, which is required and undertaken by a company of this size roughly annually, has not been done,” Indian Finance Minister Nirmala Sitharaman said in an interview with Bloomberg in October. "The basics of keeping evaluations raw and valid, and the efforts needed to keep them properly evaluated, are now being done."
Sitharaman has set a March deadline for listing. If investors agree to the government's requested $203 billion valuations, LIC will compete against India's largest company, Reliance Industries Ltd., and Tata Consultancy Services Ltd. Widening budget deficit, expected to reach 6.8% this year.
LIC declined to comment.
Investors want answers
Another challenge is convincing foreign investors that LIC will offer them.
The 10 bankers running the list have spoken to nearly every big fund that might be interested in buying the shares, including GIC Re, Canada Pension Plan Investment Board and Blackrock Inc., and the Abu Dhabi Investment Authority, according to people familiar with the matter. with the matter.
Several itinerant investors in Mumbai wanted to know if LIC would have greater independence from the Government of India after listing. They said they were skeptical at first, noting that the company bears the markings of a slow-moving corporate arm.
With each regulator receiving at least 10 crore rupees ($135,000) in fees, the actual gains from the LIC deal would be negligible if it eliminated the niche of offering what would be the biggest share sale in India's already hot market, some people said. .
Gulf Investment Corporation and BlackRock did not respond to requests for comment. CPPIB and the Abu Dhabi Investment Authority declined to comment.
But for wealthy investors who don't have many places to put their money after tech restrictions imposed by China last year, LIC may still be a good bet. The company has one of the largest assets under the management of an insurance company globally, with two-thirds of the Indian insurance market share.
LIC also has a sovereign guarantee on all of its payment obligations, which means that it can operate with a smaller capital base than its competitors. With a valuation potentially four times that of AIG, the company can attract investors looking for returns and safety.
“The initial public offering of this life insurance company is an excellent development not only for the Indian capital markets but also for India's economic growth,” said Mark Mobius, veteran emerging markets investor and founder of Mobius Capital Partners LLC.
He said the inclusion of mega state-owned companies like LIC leads to "an enlarged market capitalization of the overall Indian market with higher liquidity, making it attractive to large investors like pension funds and endowment funds, not only in India but in the world." Foreign".
India had a boom year for IPOs last year, and LIC's strong debut will only add to the momentum. The listings brought in around $18 billion in 2021, even with mixed results from some of the more interesting entrants, which included Paytm, a digital payments service, and Zomato, a food delivery startup.
An All-India Heave
As the deadline approaches, India's labyrinthine bureaucracy has become a pressure cooker.
Officials from the Divestment Department are dragging people through the night, going through hundreds of files again, and opening their doors to let in the weak sunlight in winter when New Delhi's power grid is down. Bankers work through vacation trips in the Himalayas and the Maldives. LIC executives said they miss birthdays, skip weekends, and work when they're sick.
Rural Indians are rushing to make sure they are eligible for a piece of the pie. LIC started sending SMS messages to its agents and placing advertisements in newspapers with the title: "You better be prepared in life".
Raj Kumar Shukla, a marketing manager who lives in the northern Indian village of Karauli, said a friend tipped him off about the IPO and prompted him to download an app to track stock indices. He saved Rs 50,000 (about $670) and opened a Demat account so he could invest in LIC.
"The government will benefit from this listing," he said. "They can use the money to develop the nation."
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