Insurer LIC slumps in market debut after record $3.8 billion India IPO

LIC shares fell as much as 9.4 per cent in Mumbai before paring about half of the losses. PHOTO: AFP

MUMBAI (BLOOMBERG) - State-run insurer Life Insurance Corporation (LIC) of India plunged early in its Mumbai trading debut on Tuesday (May 17) after a record initial public offering (IPO) that priced at the top of the range and was oversubscribed nearly three times.

The shares fell as much as 9.4 per cent to 860 rupees in Mumbai, versus their IPO price of 949 rupees, before paring about half of the losses. The offering raised US$2.7 billion (S$3.8 billion), with buyers including Norway's sovereign fund, Singapore sovereign wealth fund GIC and millions of small-time Indian investors.

The sale of equity in the 65-year-old behemoth, which is synonymous with insurance in India, rode on the enthusiasm of policyholders who received a 60-rupee discount and bid multiple times for the shares on offer.

A poor listing is set to disappoint millions of small-time investors who bid enthusiastically for the issue because of their long and emotional association with LIC and its products.

Prime Minister Narendra Modi's government decided to push ahead with the IPO despite a slowdown in global fund-raising as the war in Ukraine and rising interest rates stoked volatility and sapped investor appetite for equities.

Funds from the IPO are critical to bolstering government finances and meeting a budget deficit goal.

LIC's is the fourth-largest deal among global IPOs priced this year. It comes when there is a dearth of large-size offerings in financial hubs from New York and London to Hong Kong. There has not been any listing exceeding US$1 billion in Hong Kong or Europe so far this year.

The S&P BSE IPO Index, a gauge tracking the performance of Indian shares for the first two years after listing, has fallen about 25 per cent so far in 2022 after nearly tripling in the previous three years.

The weak start also brings back memories of market debuts by a number of large public sector companies that fell below issue price upon listing. New India Assurance, listed in November 2017, finished its first session 9 per cent below the listing price. In fact, of the 21 state-run firms that have debuted since 2010, half are still trading below their respective IPO prices.

Macquarie Capital Securities (India) started coverage of LIC's stock with a neutral rating and a price target of 1,000 rupees.

"The call here is whether LIC will be able to diversify the product mix in favour of high-margin non-par products," Macquarie analysts wrote in a report on Tuesday, noting that the insurer has lost market share in individual business over the past several years due to lack of a "diversified product portfolio and excessive focus on single-premium and group business".

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