LIC’s Record IPO Set to Be Fully Sold as Valuation Drives Demand

(Bloomberg) -- A 210 billion rupee ($2.7 billion) record share sale by state-run Life Insurance Corp. of India was fully taken up four days before the offering closes, as an attractive price and deep discounts spurred demand from small investors.

Policyholders and employees placed more bids for shares in the company's IPO than the amount reserved for them, while the retail portion was nearly 90% subscribed before close of bidding for the nation's biggest IPO on Thursday.

A sixth of the portion set aside for institutional investors was still unsold, exchange data showed.

Demand from LIC insurance policyholders was for nearly three times the amount of shares earmarked for them, while employees submitted orders for over two times the number of shares available.

This, even as jittery market sentiment forced the government to slash the deal size by more than half.

“The government very sensibly left money on the table with discounts for small buyers instead of trying to get the highest-possible price,” said Abhay Agarwal , fund manager at Piper Serica Advisors Pvt. “In the absence of this, it would have been tough to sell an issue so large in the current fragile market environment.”

India's government is selling 221.4 million LIC shares at between 902 rupees and 949 rupees each, which would raise as much as 210 billion rupees at the top end of the range --- far below the 500 billion rupees target earlier.

Retail investors will be alloted 35% of the total shares in the offer, and given a discount of 45 rupees from the IPO price; 10% of the float, meanwhile, has been earmarked for LIC's policyholders, who will receive a 60-rupee discount on each share.

“The valuation of the IPO is attractive to keep the issue stable,” Girirajan Murugan, chief executive of FundsIndia, an investment advisory firm, said in a note. “The embeded value seems to be in favor of LIC compared to the existing listed players in the insurance space.”

India's government, the sole shareholder of the former monopoly player, intends to use the cash raised from the sale to plug a shortfall in its budget.

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The performance of the issue is in contrast to that of the $2.5-billion IPO of Paytm, the Indian digital payments pioneer, which saw a sluggish start and was fully sold only on the last day of the issue.