LIC IPO: India's Largest Insurer Need Not Fret Over Issue Size. Here’s Why...

Life Insurance Corp. plans an initial public offering amid choppy markets, setting off concerns about investor demand for what will be the nation’s biggest maiden share sale. The insurance behemoth needn’t worry.

At least 10 companies generated demand for shares worth more than Rs 1 lakh crore in the past half-a-decade even though the size of fundraise was much smaller. FSN E-Commerce Ventures Ltd., the parent of Nykaa, and Zomato Ltd. saw total subscription above Rs 2 lakh crore. While their business is different, that underscores appetite among investors for a large share sale.

Shares of the state-run insurer could be priced between Rs 2,000 and Rs 2,100 apiece, with discounts to some retail investors, Bloomberg reported citing people aware of the matter. That pegs the size of the IPO at around Rs 65,000-66,000 crore.

The state-owned insurer has reserved 5% of the issue for employees and up to 10% for policyholders. Net of these two categories, the 35% is set aside for retail investors.

Excluding anchor allocation that happens a day prior to the IPO launch, the issue size will be Rs 49,477 crore.

The LIC IPO’s retail portion is worth Rs 19,758 crore, the highest since Rs 7,013 crore for SBI Cards & Payment Services Ltd., according to data by Prime Database.

Getting such a big retail participation will be a challenge, given that the minimum lot size is seven and a price of Rs 2,100 apiece. LIC will need at least 10.33 lakh applications, with each retail investor applying for 13 lots each for full subscription of the retail category—that invests under Rs 2 lakh per applicant.

It's not impossible though. Devyani International Ltd.’s IPO received 32.66 lakh applications.

And any unsubscribed retail portion gets added to the shares set aside for qualified institutional investors.

The employee and policyholders’ portion together amounts to nearly Rs 9,962 crore. Shares allocated to policyholders are expected to be worth around Rs 6,300 crore after discount.

Like retail investors, these two categories have a cap of Rs 2 lakh.

LIC has a workforce of 1.05 lakh, and it would need at least 1.73 lakh applications for the employee portion to be fully subscribed. And the insurer would need at least 3.47 lakh out of its 26-crore policyholders to fully subscribe to shares allocated to this category.

Policyholders who have PAN linked to their plans and demat accounts are only eligible to invest under this category. If they happen to be LIC employees, they can invest simultaneously under the three categories: employee, policyholder and retail, or up to Rs 6 lakh.

A non-employee policyholder can invest up to Rs 4 lakh under two applications.

The non-institutional category, including wealthy investors, portfolio managers and other funds, largely invests for listing-day gains.

The NII portion of LIC offer is Rs 8,468 crore. This category has seen more demand in previous IPOs.

• Latent View Analytics Ltd.’s IPO received 70% of its total demand of Rs 1.11 lakh crore from non-institutional buyers. It also saw the highest oversubscription in this category at 875 times via 19,425 applications. The average size was Rs 4 crore per applicant.

• The average value per applicant rose to the highest of Rs 20.56 crore for Cochin Shipyard Ltd. in this category.

Assuming an average of Rs 4 crore, LIC would need a little over 2,100 applications for the NII portion to be fully subscribed.

Qualified institutional buyers, like any other IPO, have the highest allocation in the LIC offer as shares worth Rs 28,225 crore.

The maximum demand in this category came in Zomato Ltd.’s IPO at Rs 1,57,587 crore.

QIBs also act as a backstock for all other segments. Any unsubscribed shares in retail, employees, policyholder and NII categories will be added to the QIB portion.