LIC PUBLIC ISSUE SINKS

SECURITY: A life insurance policy has been considered the greatest security for the family if anything happens to the bread earner. the entire insured amount is payed to the survivors irrespective of how much premium has been payed. For example, even if only Rs. 20,000/- has been payed and the insured amount is Rs. 10 lacs, the survivors will get the entire insured amount without having to pay any more premiums.

The public issue of Life Insurance Corporation of India which was offered to policy holders at a price of Rs. 53 is now quoting below par to a negative figure. The timing of this issue, which should have attracted massive demand, as LIC is the most profitable public sector company in the country, sank. It was affected by the ongoing war in Ukraine which has led to steep inflation and disruption of the economy. The policy holders are the losers.

By Our Financial Correspondent

THE LARGEST EVER IPO by a public sector corporation sank from 93-95 a share to between Rs 8-10/share on May 5th. Even more alarmingly the share fell to a negative Rs 15 last Wednesday. The accumulated losses of LIC due to the fall in the value of shares is estimated to be Rs 6000 cr. This will seriously affect the policy holders in the LIC whose premiums have made it the most prosperous of the Navratnas. Worst affected will be those who have taken life policies as their heirs might not get the principal amounts for which they insure themselves for the benefit of the family.
The grey market premium (GMP) of Life Insurance Corp (LIC) shares on Wednesday turned negative ahead of its listing on May 17.
A trader who did not wish to be named, said at the peak, the LIC GMP was at Rs 93-95 a share and then it started going downhill. It was trading between Rs 8 and Rs 10 a share on May 5. On May 6 and 10, it was very volatile, with a downward trend, he said. From Rs 8-9 a share, it fell to negative Rs 15 a share on Wednesday, he added.
The GMP has fallen steadily from its peak amidst worries of lukewarm response from foreign investors. The IPO was subscribed mostly by retail and domestic institutional buyers. Foreign investor participation was muted.
Volatility, sparked by fears of a tightening by global central banks following higher inflation, also worried investors.
While lower valuation, compared to peers, is positive, accumulated losses of Rs 6,028 crore, losing market share, weak digital presence and the perception that not all decisions taken by the largest life insurer in the country are not in sync with shareholder interests are worrying some analysts.
The government will be raising Rs 20,500 crore by selling 3.5 per cent of its stake in the country’s largest insurer. The share sale opened on May 4 and closed on May 9. Allotments will be done on May 12 and shares will be credited to the demat accounts on May 16.
LIC, which slashed around 60 percent of its issue size due to poor market conditions, had earlier fixed the price band at Rs 902-949 a share.
The IPO was a pure offer for sale of up to 221.37 million shares. The firm reserved around 59.29 million shares for the anchor investor portion. Employee reservation portion is at 1.58 million, while policyholder reservation is at 22.14 million. The QIB portion is set at 98.83 million.
“The IPO was priced quite reasonably. However, volatile market sentiments disturbed the mood of investors. We would have seen much higher subscription across all investor categories, if market sentiments remained stable,” said Manan Doshi co-founder, UnlistedArena.com.
“The volatile market environment, low subscription, and bulky issue size are the factors generating pessimism, despite the offer being attractive,” he said.
Meanwhile, GMP of Delhivery Ltd was trading at Rs 8-9 a share, Venus Pipes & Tubes Ltd Rs40-42 a share, Prudent Corp Advisory Services Ltd Rs 34-36 a share.

OUR FINANCIAL CORRESPONDENT ADDS
The Modi government has been on a spree of selling many public sector Navratnas to make up for the huge losses incurred due to the free supply of Covid vaccines over a 100 cr. This does not include the cost of the syringes and the oxygen cylinders that had to be used in serious cases.
The Modi government had been planning to sell a percentage of the government holding in the LIC even pre-covid. It however had to postpone the public issue as it was afraid that the market may not respond. While a small proportion was offered to policy holders the bulk of the shares were offered to institutional buyers. Going by the past performance of the LIC the price at which the shares were being offered were quite reasonable. But the government should have waited given the fact that the share market is very volatile.
The Covid lockdown which has seen a sharp fall in demand has been compounded by the war in Ukraine. The supply of several essential commodities which India used to sources from Ukraine have led to galloping inflation. Ukraine is the largest producer of natural gas in Europe. It is not widely known that Ukraine is also the largest producer of sunflower seeds, and the largest steel plant in then world. The steel plant has been recently taken over by the Russian army.
Besides the Ukraine factor the stock markets have also been affected by the world wide boycott of Russia. Many leading development companies have frozen the bank accounts of Russian companies. There is also a boycott of purchase of petroleum from Russia which accounts for 20% of the global fossil fuels which are based in Siberia.
The international crisis of a combination of Covid and the Ukraine war have led several central banks to increase the prime rate. The prime rate is the rate at which banks lend money to private banks. For the first time the Federal reserve which is the equivalent of the Indian Reserve Bank has sharply increase the prime rate. Similarly the Bank of England also have increase the prime rate sharply.
This has cause a reverse flow of foreign funds from Indian stock markets. The increase in the rates by the federal reserve and the bank of England has led to a sharp drop in the value of the rupee to its lowest even value. Foreign ministers used to invest in the Indian stock markets when the value of the Rupee was comparatively high giving them better returns. Now it is reversed and foreign capital is moving out causing extreme volatility in the stock market. Even the value of market leaders like TCS and Wipro not to mention bank shares like HDFC have fallen sharp. This was a long time for the LIC to come out with an IPO.

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