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LIC IPO: An idea whose time has not come

More than the regulatory changes the government will have to overcome, it will need to consider LIC's returns and valuation

N Sundaresha Subramanian  |  New Delhi 

It was a monsoon morning two years ago. The new finance minister Arun Jaitley, less than a month in North Block, was in Mumbai. He met top bankers and chiefs of big funds, and insurers. The incumbent RBI governor, Urjit Patel, who was then the deputy governor, was also in attendance. A few days later, the media started reporting various ideas that came during this brainstorming session of the crème de la crème of India’s financial capital. One of these was the listing of Life insurance Corporation of India (LIC). On June 12, 2014, Business Standard carried an analytical piece saying the LIC would likely be worth Rs 5 lakh crore if it was listed (at the time). A few days later, this interesting anecdote came up in the Indian Express. In a fly in the wall account of the meeting, the article describes how Kotak Mahindra group chief Uday Kotak had said the centre could reap a huge windfall by listing LIC, which was valued at Rs 10 lakh crore. But S K Roy, the chairman of the insurer, had other ideas. He said LIC’s asset size exceeded Rs 18 lakh crore. “If government wants to make Rs 18 lakh crore into a Rs 10 lakh crore organisation, it can do that,” Roy, who was completely against the idea, reportedly said. In the age of so-called unicorns, where loss-making companies without any earnings visibility or any meaningful assets are being valued at billions of dollars, LIC can probably get any valuation it demands. Whether 5, 10 or 18 lakh crore, whether then or now, LIC remains easily the most valued Indian company. Tata Consultancy Services had a market cap of Rs 4.3 lakh crore at the time of that Mumbai meeting; it is now worth about Rs 4.93 lakh crore. But then the operative word here is ‘company’. LIC is not a company. If you are not a company, you can’t get listed. LIC is a statutory corporation brought into being by an Act of Parliament passed in 1956. The finance minister chose the 60th founding day of the organisation to give fresh life to an idea that would change its fundamental character. At a basic level, this is likely to involve several steps. The act needs to be repealed. LIC has to be corporatised. The staff need to be convinced.

Assuming the government jumps through all of these hoops in the next couple of years, before poll bells start ringing, what is there in it for the investor? The government got a dividend of Rs 2,500 crore for FY2016. In comparison, Coal India, the most valuable public sector firm gave a dividend in excess of Rs 20,000 crore to its shareholders. The year before, it gave around Rs 15,000 crore. At least on this parameters, the valuation looks stretched. The Business Standard article quoted above put a conservative valuation of around Rs 3-3.5 lakh crore. The recent rush for IPOs in the private sector insurance space has seen valuations shooting up in space of months. ICICI Prudential, which clocked total premium income of Rs 19,164 crore in FY 16. It is valued at around Rs 50,000 crore. LIC’s total premium income for FY16 was around Rs 30,000 crore. On the Assets under management though LIC is far ahead. It has added over Rs 6 lakh since that quip before Jaitley, flirting with Rs 25 lakh crore-mark, compared to around Rs 1 lakh crore for ICICI PruLife. It is for bankers for to look at the right metrics and arrive at the right number. If the experience in the banking sector was anything to go by, LIC would find it difficult to command the same valuations as its private sector peers, given the various national duties such as disinvestment, shoring up the Sensex etc, it might be called for every now and then. No worries. The stake sale in SUUTI and some of the other strategic sales have been taking their own sweet time of nearly a decade. Selling LIC, which is a living organisation, would at least take as much time. Considering the complexities, I can only imagine it taking a bit more. Imagining LIC as the largest listed company is a nice little touch for the finance minister to make at its Diamond jubilee. It is both a carrot and a stick, depending on whether you are an investor or an employee. It might even be that little fun Jaitley often has in getting the media to read between his lines. But, harping on valuations without much work on ground could be counter-productive. Eight years ago, the board of another public sector behemoth had just cleared a $10 billion IPO at a valuation of $100 billion. Its enthusiastic minister went on TV giving out share prices and even potential listing gains for employees. What happened after is history.

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First Published: Fri, September 02 2016. 11:58 IST
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