The Centre is mulling to draw in a clutch of anchor investors to pump in up to Rs 25,000 crore in the shares of Life Insurance Corporation of India (LIC) in its IPO (Initial Public Offering).
The state-run insurer will also undergo a change in its board structure and adopt new accounting standards before its initial share sales.
The anchor investors will be invited “after the embedded valuation exercise is done” and the IPO pricing is “ready”, a source told the Mint.
There may be over two dozen (24) anchor investors in LIC’s IPO, another source added. A mere 10% stake in the country’s largest insurer is assessed to be worth at least Rs 1 lakh crore, which is remarkably high for the Indian equity market.
The anchor investors will purchase a portion of LIC’s shares, meant for qualified institutional buyers (QIBs). “If anchor investors pay a certain amount and the market is ready to pay more than that on the day of IPO, the anchor investors will have to bring in the extra amount to match the market price. If the market shows a demand of less, we don’t have to refund the extra amount to anchor investors. This is the benefit of having anchor investors,” the source further told the publication.
Meanwhile, the state-run insurer is “aligning” its compliance processes with listing norms and will make changes at the “constitutional level”. The LIC board, presently, is not as per the prescribed SEBI norms.
The insurer’s draft red herring prospectus will be filed within six months, the source added. “Once their annual financials are ready, it will aid the process of valuation. We will come out very soon with the RFP for appointing merchant bankers, advisors, and the registrar for the IPO,” the source stated.
According to SEBI norms, anchor investors are QIBs who purchase company shares at a specific price by applying to invest up to Rs 10 crore in the IPO before it opens for subscription.
As much as 50% of the shares of an issue can be offered to QIBs. Of this, up to 60% can be allotted to anchor investors. Each investor is under a 30-day lock-in period on shares.
The report stated that having anchor investors would be beneficial in LIC’s listing, due to the issue size and concern regarding stable growth of the restructured entity.
It noted that the “exact size of the IPO is not yet ascertained” which will be “worked out only after the embedded valuation report of LIC is ready.”