Aramco-like mammoth IPO proposed for India's biggest insurer

[MUMBAI] Prime Minister Narendra Modi's government surprised investors by saying it will sell part of its stake in the state-run behemoth Life Insurance Corporation of India to meet its record asset-sale target.

Investors likened the proposal to Saudi Aramco, which in December raised about US$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."

Now comes the hard part. LIC, whose total assets of 31 trillion rupees (US$434 billion) exceed that of all Indian mutual funds combined, was set up under a special act in 1956. The government will have to amend the law, a process that may delay the sale beyond March 2021 and keep it from meeting its record divestment target of 2.1 trillion rupees.

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 per cent in a special trading session 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 in Mumbai. "Even a 10 per cent dilution will be difficult for the market to absorb it in one go."

The sale can fetch the government between 850 billion rupees to 900 billion rupees should the IPO get done this year, Credit Suisse analysts led by Neelkanth Mishra wrote in a note.

Insurance stocks have been star performers in recent years. SBI Life was among four insurers whose IPOs raised more than US$1 billion in 2017, data compiled by Bloomberg show.

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 and Larsen & Toubro, that are collectively worth more than US$80 billion, data compiled by Bloomberg show. Last year, the insurer bailed out IDBI Bank by buying a 51 per cent 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."

Still, taking LIC public will help instil "discipline" and help unlock value, Finance Minister Nirmala Sitharaman said in her budget speech, without providing details or the timeline for the sale.

"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.

BLOOMBERG