Congress questions undervaluation of LIC IPO

Since Jan-Feb 2022, share price band of LIC has been lowered down by the government from Rs 1100 per share to the current price band of Rs 902 – 949 per share. Some experts feel that the government will lose Rs 30,000 Crore by reduction in Embedded Value and paring down the Price Band, says Congress chief spokesperson Randeep Surjewala

New Delhi: The Congress on Tuesday questioned the Modi government’s act of undervaluing the proposed LIC IPO saying the insurance giant was set up and nurtured by first prime minister Jawaharlal Nehru and home minister Sardar Patel in 1956 and was a crown jewel of India.

“Why is the government undervaluing the trust of 30 crore LIC policy holders in the country. LIC is a crown jewel of India and was set by first Prime Minister Jawaharlal Nehru and Home Minister Sardar Patel on September 1, 1956. They nurtured the company. We have no objection to disinvestment of public companies but there seems to be a desperation behind the country’s biggest insurance IPO,” Congress chief spokesperson Randeep Surjewala said at an AICC briefing.

According to Surjewala the government had recently said that it was putting on hold the disinvestment of public companies due to domestic and global financial uncertainty due to the Russia-Ukraine war and other factors but why did it then decide to go ahead with the LIC IPO. The Congress leader asked why was the LIC valuation of Rs 12-14 Lakh Crore in February 2022 reduced to Rs. 6 Lakh Crore in just 2 months.

“LIC shares are significantly undervalued. While filing the prospectus in February 2022 for this mega IPO, LIC disinvestment was aimed at 2.5 times the embedded value (EV), but now the valuation of the IPO is towards 1.1 times its embedded value. Comparably, HDFC Life Insurance is trading at 3.9 times EV, and SBI Life and ICICI Prudential Life trade at 3.2 times and 2.5 times their embedded value respectively,” Surjewala said.

“Since Jan-Feb 2022, share price band of LIC has been lowered down by the government from Rs 1100 per share to the current price band of Rs 902 – 949 per share. Some experts feel that the government will lose Rs 30,000 Crore by reduction in Embedded Value and paring down the price band,” the Congress leader added.

The Congress leader further asked why did the Modi government suddenly reduce the ‘Valuation of LIC’ and ‘Issue Size’ after roadshows in India and abroad. The issue size of LIC's IPO has been pared down from 5% to 3.5% and the key indices of the corporation has been undermining, he said.

“In Feb 2022, the government conducted formal road shows for big ticket investors, Pension Funds, Mutual Funds, Investment Corporations like Capital Group, Aberdeen Asset Management, California University Endowment, Abu-Dhabi Investment Authority, Govt of Singapore Investment Corporation, Canadian Pension Funds, HSBC Mutual Fund, Franklin Templeton Fund etc.., with a target to get Rs. 70,000 Crore by sale of 5% stake. This target has now been reduced to get 21,000 Crore by sale of 3.5% stake,” Surjewala pointed out.

“The reason for a change of heart after road shows abroad to revise the valuation drastically and also reduce the stake sale by 5% to 3.5% remains unexplained,” he wondered. The Congress leader blamed that the government is ignoring LIC’s key indices like high ‘Return of Equity’ – ROE among Global Peers, Compound Annual Growth Rate – CAGR, NET Premium Earned and Market Share in India.

“The reason for undermining these key determinants is unknown to every market watcher or financial expert,” he said.