February 7, 2023

Great Indian Mutiny

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Future investors fear India’s control over insurance resources by 2022 in India’s largest LIC IPO: review and features

MUMBAI (Reuters) – Potential investors in India’s Life Insurance Corp (LIC)’s $ 8 billion IPO have demanded guarantees from the company’s management that it will not sacrifice its interests to achieve the goals set by the government, its shareholders and their resources. he said.

On Virtual Roadshows for India’s largest public listing, four people familiar with the matter said that LIC management and IPO bankers were full of questions about previous investments and the quality of the insurer.

LIC has been playing a major role in buying shares in state-owned companies sold by New Delhi in recent years, often saving public issues of less successful shares. It was also used to rescue troubled financial institutions.

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Sources said the potential clashes of interest in advertising IPO rounds, which began last week, are taking center stage and are expected to continue until the end of this month.

“The government tends to act as a regulator, director and partner, and tends to confuse its position at different times,” said Sriram Subramanian, founder of Ingfern, a performance consultancy that does not attend road shows.

“Government ministries can trust that the Life Insurance Company (LIC) is 100% under their control and will want to exert that kind of influence when needed, which is a concern for investors,” Subramaniam added.

The performance of LIC and its investment bankers in addressing investor concerns will help determine the rating of the insurer’s IPO, thus the financial health of the Government of India depends on the IPO returns.

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The Finance Ministry did not respond to requests for comment, while LIC declined to comment. They refused to identify the sources because the discussions were private.

In its preliminary prospectus, the insurer cited government intervention, saying it now owns 100% of LIC and is expected to hold about 95% of the shares after the IPO, a risk factor and that minority shareholders could be affected by the government’s action.

LIC Chairman MR. Kumar told a news conference on Monday that investors should not worry about government control after the initial public offering, as decisions are made by its board of directors, not the government.

Is it equivalent to Indian coal?

LIC was formed when the insurance industry in India was nationalized six decades ago, and has over 280 million insurance policies and more than 60% of the business purpose in the insurance industry spread across the country.

As on March last year, Rs. 23.5 trillion ($ 315 billion) in total, Rs. It is also a larger investor than the central bank at $ 115.2 trillion. .Introduction. .

In 2019, the government bought the troubled IDBI Bank (IDBINS), whose shares plummeted and the government is struggling to find a potential buyer for a lender whose nearly one-third of its ledger is damaged.

LIC said in its drafts that it may have to pay more capital to IDBI, looking for a buyer for more than 50% of the lender’s shares.

Some market analysts and financial managers have sided with LIC and Coal India (COAL.NS), which first appeared on the market in 2010 and, despite being a monopoly, has lost more than half of its market value.

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In a recent revenue call, Pramod Agarwal, Chairman and Managing Director, Coal India, said that one of the reasons for the current low market valuation is that the government sometimes takes action that is not appreciated by shareholders.

“If LIC makes decisions that do not help its shareholders, they will give voice to their concerns,” said Ashwin Barrick, an independent financial services consultant.

“This happened when the LIC faced similar hurdles from its shareholders as it was worried about what the big stakeholder would do when the state-owned Coal India withdrew from its investment fund after its listing.”

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(Reporting by Nupur Anand in Mumbai, Aftab Ahmed in New Delhi and Scott Murdoch in Sydney; Editing by Sumit Chatterjee and Muralikumar Anandaraman

Our criteria: Thomson Reuters Trust Principles.