How the government is fine-tuning the rules to ensure the success of its biggest IPO

Prime Minister Narendra Modi’s government has made the IPO – which could raise between 400 billion rupees ($ 5.4 billion) and 1,000 billion rupees this quarter – a key part of its economic agenda, with the product of the public insurer essential to reach a budget. deficit target.

“The size of LIC is mind-boggling,” said Abhay Agarwal, fund manager at Mumbai-based Piper Serica Advisors Pvt. While it may be easy for the government to make the necessary regulatory changes to the IPO, “it will take significant marketing efforts to cross the 500 billion rupee line,” he added.

Source: Bloomberg

The authorities will review and change the rules on foreign direct investment to make it easier to attract foreign investors, an official said this month without specifying a timetable. Foreign equity investments are allowed for most Indian insurers, but not in LIC, which is a special entity created by an act of Parliament.

Allowing foreign stakes in the mega-offering would not only allow global funds to participate, but would also allow them to buy more after the stock market listing. Regulators took further steps at the end of last month, including toughening the rules governing share sales by key investors.

‘Be ready’

As it prepares the ground for the offer, LIC texted policyholders and started running newspaper ads last month with the headline: “It’s better in life to be prepared”. The firm has asked customers to update some of their personal details and accounts that allow them to participate in the show.

The Securities and Exchange Board of India plans to recruit 120 senior executives in its legal, IT, research, and general and official languages ​​departments, representing around 14% of its employees.

More than 110 companies first sold shares in India last year to raise nearly $ 18 billion, a fourfold increase from 2020. While the average performance since its inception has been positive, the The country’s biggest IPO last year was a failure. Digital payments giant Paytm has fallen more than 45% since its $ 2.4 billion IPO in November, with analysts pointing to its costly valuation.

Paytm’s IPO broke the long-standing record held by Coal India Ltd., whose bid in 2010 saw the government sell a 10% stake in the company. While the stock surged when it debuted on the stock market, it is now down about a third from the listing price.

“The government will also need to learn from its past mistake of pricing public sector IPOs too high,” said Agarwal of Piper Serica. “The valuation will need to leave enough on the table for investors to attract them to the IPO.”