Video Producer: Naman Shah
Video Editor: Purnendu Pritam
Prime Minister Narendra Modi is banking on LIC’s IPO to fix his budget this year. His government could be raising up to ₹80,000 crore in a public offering that could value the behemoth at between ₹10-15 lakh crore ($150-200 billion). The guy he needs to thank for this bailout is, ahem, former Prime Minister Jawaharlal Nehru, who set up the Life Insurance Corporation (LIC) of India in 1956 by nationalising and merging 154 domestic insurers, 16 foreign outfits, and 75 provident companies. But I guess you will not find Nehru’s mugshot on the DRHP (Draft Red Herring Prospectus)?
The Modi government has pulled out all the stops to float LIC. The securities regulator has changed its rules to allow a mere 5% of the shares to be sold to investors. Ten marquee investment banks, from Wall Street icons like Goldman Sachs and JP Morgan to scrappy/aggressive local dealers like JM Financial and Kotak Mahindra, have been appointed. The law has been amended to put LIC’s policyholders at par with employees, thereby enabling them to get 10% of the float at a 10% discount.
Why Is the Government Under-Confident About LIC’s IPO?
Yet the government may baulk at selling the whole lot in one go. I guess the rout suffered by two earlier insurance IPOs — GIC and New India Assurance have wiped out over half of their IPO value — could be scaring the government. In any case, many doubt the ability of Indian markets to absorb ₹80,000 cr in one shot. So, there is talk of breaking up the offer into two tranches of about ₹40,000 cr each, i.e., sell, burp, and sell again.
But the government could be betraying a terrible lack of confidence and thereby missing a trick here.
LIC is touted as the strongest insurance brand in Asia by the London-based consultancy firm Brand Finance.
At Number 3, LIC trails Italy’s Poste Italiane (No. 1) and Spain’s Mapfre (No. 2) but is ahead of China’s Ping An Insurance (No. 4) and South Korea’s Samsung Life Insurance (No. 5). Of course, in terms of brand value, it trails several Chinese, German, French, and American companies, but still comes in strong at Number 10 with $8.65 billion. What’s more, its brand value has increased by 6.8% in a year in which the total brand value of the top 100 insurance companies in the world has dipped by 6% because of the COVID-19 pandemic.
LIC is Bigger Than China Life. So Why Is it Not Venturing Overseas?
However, the KO punch lies beyond the abstract concepts of brand value and strength. It lies in hard operating numbers and the tangible metrics of market capitalisation. Here’s a head-to-head comparison with China Life Insurance (Group) Company, the biggest in that country:
LIC has nearly 3 million field agents vs China Life’s 1.8 million sales force channels
Both companies have sold nearly 300 million policies
LIC’s 66% market share is superior to China Life’s half-a-billion customers
LIC’s market cap at listing is expected to be in the $100-150 billion range, higher than China Life’s $90-100 billion
LIC will be listed on NSE and BSE in India; China Life is listed in Shanghai, Hong Kong, and New York
Read the last two points again, slowly and deliberately:
LIC has a bigger market value than China Life
But LIC is being confined to India, while China Life has aggressively listed in competitive global stock exchanges
Let’s 'Do a Neeraj Chopra' With LIC
Now think a bit out of the box, think bold:
Why should we slice the offering in two tranches, separated by several months, simply because we are scared our local investors may not have enough appetite? Instead, why don’t we sell half the issue in India, and simultaneously sell the other half overseas?
Also, why shouldn’t we “do a Neeraj Chopra” with LIC? Why should we always resign ourselves to playing second fiddle to China? Why should we accept that as our destiny? Especially since LIC, at a market cap of $100-150 billion, may have the potential to beat five Chinese majors, including China Life, Ping An, China Pacific Insurance, China’s AIA, and People’s Insurance Company of China?
Finally, why should we stay safe and isolated in our backyard? Why can’t we beard the lion in his den? Why can’t we venture into their backyard, fearlessly list LIC in Hong Kong, perhaps even in Shanghai, if regulations would permit that? And get their measure on neutral turf in London and New York?
Wait, the naysayers will yelp. Will LIC’s balance sheet withstand international scrutiny? Will ruthless forensics by foreign investors expose its warts? Will it become susceptible to global market shocks? Will its stock price survive volatile foreign exchange movements? And, taking final refuge behind pusillanimous laws, don’t India’s money laundering rules bar us from venturing into Hong Kong and Shanghai stock exchanges?
Yeah sure, we risk-averse Indians can rationalise anything and keep the ship anchored in a safe domestic harbour. Or we could take a cue from the SEBI report of 2018 that had recommended that the time was ripe to open Hong Kong and China for our companies. Now the choice is ours. We can either stay unscratched in the Delhi Zoo or go and slay the Dragon in its den.
For a minute, just imagine the headline: Top Indian Insurer Lists in Shanghai at a Bigger Market Cap Than China Life?
Gosh, it will be a triumph of India’s foreign policy as much as of her economy!