INOT 1956, AS As part of its experiment in embracing socialism, India established the Life Insurance Company of India (LIC) by nationalizing and consolidating 245 companies. The experiment took a long time to conclude. In 2000, India again allowed private companies to sell life insurance. Two decades later, he sells a 3.5% slice of LIC on the public market, a first step towards what is supposed to be a complete privatization. Orders will be taken from investors between May 4 and May 9. Trading is due to begin May 17.
The scale of LIC is such that the sale of even this insignificant stake will raise $2.7 billion, making it the fifth largest public offering of the year globally and the largest in Indian history. One of the reasons the company gives for selling such a small percentage is that selling more could crowd out investments in other private and state-owned companies in the capital-constrained country’s market. For similar reasons, market regulators are already considering waiving a provision that currently requires the controlling shareholder of a publicly traded company to reduce its stake below 75% within five years.
Once listed, LIC will have a market valuation of approximately $80 billion, making it the fifth most valuable life insurer in the world. What is even more striking is how LIC dominates the Indian market. Its absolute supremacy has no equivalent in any other major country: LIC has an impressive 286 million policies in force and collects 64% of all premiums written in India (the largest insurer’s share in Britain is 23%; in China it is 21%). The firm has $507 billion in assets under management, triple the amount of its 23 private competitors combined.
Although such dominance gives the company and its products unparalleled scale – a big advantage in an industry built on trust – the 659-page listing prospectus makes it clear that there are cracks in LICthe armour. Premiums have grown by 9% a year over the past five years, a good performance but pales in comparison to its Indian competitors, many of which have grown twice as fast.
And ties to government can come at a cost. Investors have long suspected that LIC is often required to invest at least part of his bounty river in the interests of the state rather than the pursuit of profits, quietly sowing trouble. Included in the prospectus’s 47 pages of risk factors are LICthe significant investment of HE&FSa government-backed infrastructure investment fund that spectacularly failed in 2018, and its majority stake in another formerly government-controlled entity, IDBI Bank, which it purchased as a contribution to a 2019 bailout. Also shown are equity investments purchased over the years for 8.8 billion rupees ($115 million), currently valued at 2 billion, and debt investments of 113 billion rupees, of which 54 billion are classified as non-performing assets.
A public listing, and the transparency that must accompany it, can modify this approach. But worries about hidden issues and continued government interference are worrying investors, which helps explain why the deal comes at such a low price. Until recently, it was expected that LIC would be valued at three times its Indian Embedded Value, an approach based on the present value of future earnings derived from expected premiums, like most other Indian private insurance companies. Instead LIC the shares are likely to be sold at just 1.1x, suggesting buyers have serious reservations.
Yet, over time, the most salient detail on the list may have nothing to do with price and size and everything to do with the fact that it happened. When Narendra Modi’s newly re-elected administration first proposed a public sale of a stake in LIC, in early 2020, it was derided as an empty political promise. High-profile efforts to whip other state-controlled assets, including Air India, had repeatedly failed. In October of the same year, however, Air India was finally sold to the Tata Group, from which it had been seized in 1953. LICThe return to the markets after a gap almost as long is not without its hitches. But it does suggest that a cycle may have truly, if not entirely, come to an end. ■
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