LIC’s IPO pricing may value it at less than Reliance, TCS – Times of India


MUMBAI: The government is likely to value Life Insurance Corporation (LIC) at a price more conservative than what some analysts had earlier estimated. In fact, some had even forecasted that it would be the most valuable company in India.
While the valuation will be in several lakh crore rupees, it will be in single digits, which will place it below companies like Reliance Industries (Rs 16 lakh crore) and TCS (Rs 13.8 lakh crore). However, even at a conservative valuation, the initial public offer (IPO) would be the largest in the country.
To encourage policyholders to participate in the IPO, LIC would be issuing shares at a discount to customers. The corporation is keen on policyholder participation as, in future, there will be a shift in the distribution of surplus. Currently, the corporation distributes only 5% of its surplus to shareholders as against the 10% that it is allowed to with the rest being distributed to the policyholders. Conservative pricing would provide a sense of comfort to retail investors.


Actuarial firm Milliman has submitted its report on the embedded value of LIC, which will serve as the basis of the pricing. According to insurance industry sources, comparing LIC’s assets under management (AUM) with that of private players would give it a disproportionate valuation. This is because a large chunk of the corporation’s funds represents guaranteed return plans, group insurance funds and superannuation funds of employers. The margins in these businesses are extremely low.
Currently, State Bank of India-owned SBI Life Insurance has a market capitalisation of Rs 1.2 lakh crore against assets under management of Rs 2.4 lakh crore. LIC has an AUM that is almost 15 times higher. This had prompted many to assign a value of over Rs 15 lakh crore, which is turning out to be too optimistic, according to actuaries. The corporation is likely to make the embedded value report a part of the draft red herring prospectus, which it will file incorporating first-half results.
In the past, when the government had fixed an ambitious pricing for public sector units like General Insurance Corporation and New India Assurance, LIC had to step in and support the issue. This time around, the success of the issue will be incumbent only on market demand.


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