Here's how Market volatility has dented Government's plan for LIC bumper IPO [details]

Centre to now dilute only 3.5 % equity in the Initial Public Offering (IPO) of LIC instead of 5%.

In the initial public offering (IPO) of Life Insurance Corp of India (LIC), which is expected to enter the market in the first week of May, the government will issue 3.5 % ownership. On Saturday, the LIC board of directors voted to approve the planned 3.5 % equity dilution.

The company is expected to be valued at Rs 6 lakh crore, with a 3.5 % dilution resulting in a Rs 21,000 crore offer size. The IPO offering size was previously estimated to be between Rs. 60,000 and Rs. 63,000 crore. However, with the markets turbulent, it appears that a larger issue will be tough to sell. The company was earlier looking to dilute 5% of the equity.

Life Insurance Corporation of India Reuters

The government is expected to contact the Securities and Exchange Board of India (SEBI) this week to request authorization for a lesser issuance size. If a company's post-issue capital, computed at the offer price, exceeds Rs. 1 lakh crore, SEBI's public offer guidelines require that the company's post-issue capital be determined at the offer price. It must issue shares worth Rs. 5,000 crore and hold 5% of the equity. The LIC offer will be the first to touch the market since the large offer rule was implemented last year.

Market volatility spoils the party

For supplying less than the threshold amount, the government will need an exception to the rule. A 5% equity dilution was proposed in the Draft Red Herring Prospectus. Following negotiations with all stakeholders, the government has decided to proceed with the listing, but with a smaller size due to market volatility. Officials said the state-owned insurer's listing is critical to increasing public involvement and ensuring that domestic investors' expectations for the proposed offer are realised.

Stock market — Representational image.Pixabay

Furthermore, any further delay in the IPO was seen as having the potential to put it back permanently, as volatility could linger as the US Federal Reserve raises interest rates and international tensions rise. The initial public offering (IPO) of LIC was scheduled for March but was postponed due to market volatility following Russia's invasion of Ukraine at the end of February.