As LIC IPO nears to close, foreign investors steer clear over market risk

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have on the whole steered clear of India’s biggest share sale, deeming it too expensive given currency risks and the global market backdrop.

With just hours to go until the end of the subscription period for the $2.7 billion initial public offering of Life Insurance Corporation of India, foreign institutional funds have put in orders for merely 8% of the shares set aside for all institutional buyers.



While the anchor portion of the IPO drew in sovereign funds from Norway and Singapore, most of the shares went to domestic mutual funds.

, have been pulling out heavily in the secondary market since October. The Fed rate hike and the recent slide in the rupee against the dollar further enhances risks of currency depreciation that can erode their asset price gains in India,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in.

“So there is little reason for them to participate in an IPO, large as it may be.”



Dubbed India’s “Aramco moment” in reference to Gulf oil giant Saudi Arabian Oil Co.’s $29.4 billion listing in 2019 — the world’s largest — the float of LIC has ended up resembling the Aramco IPO not just in scale but in its reliance on domestic investors after foreign buyers deemed the float too expensive.

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LIC has been seeking to drum up interest with newspaper advertisements since the start of the year, seeking to take advantage of a retail investment boom in India.

India’s government had cut the fundraising of the IPO by about 60% as the war in Ukraine roiled markets, denting risk appetite, while rising US interest rates are putting foreign investors off emerging market stocks. It also cut the valuation it is seeking for the country’s oldest insurer, which would be worth 6 trillion rupees ($78 billion) at the top of the price range.

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ALSO READ: LIC IPO: QIB portion including banks, MFs fully subscribed on last day



Locals Pile In

While foreign investors have shunned the deal, retail buyers have been piling in. Policyholders placed bids for over five times the shares reserved for them, while the employee portion received orders for four times the amount available, stock exchange data showed. Retail investors and policyholders receive discounts on the offer price.

Overall, the IPO has received orders for double the shares on offer, while the tranche for institutional investors is now fully sold.

The muted international investor interest stands in sharp contrast to some of last year’s Indian IPOs. One97 Communications Ltd., which operates digital payments firm Paytm, drew in the likes of BlackRock Inc., Canada Pension Plan Investment Board and Teacher Retirement System of Texas, among many others, for its 183 billion rupee share sale last year. Food delivery platform Zomato Ltd. was similarly popular among foreign investors.

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However those buyers have been left nursing losses as enthusiasm over India’s tech boom waned after some flops. Paytm sank 27% on its debut and is now trading 74% below its offer price. Zomato had a strong debut last summer but has since lost 20% in value.

Investors have also had concerns about LIC’s ability to keep market share as private insurers like HDFC Life Insurance Co. Ltd. and SBI Life Insurance Co. Ltd. expand. The private sector has been on an aggressive expansion spree during the pandemic, growing new individual policy premiums while LIC struggles.

, Generally, have never been big on state-run companies as it is very difficult to make money off them,” said Abhay Agarwal, fund manager Piper Serica Advisors Ltd. “For LIC too the government was unable to convincingly communicate to global investors that the insurer will prioritize the interest of shareholders and won’t function merely as a government entity.”

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As LIC IPO nears to close, foreign investors steer clear over market risk

Advertisement




have on the whole steered clear of India’s biggest share sale, deeming it too expensive given currency risks and the global market backdrop.

With just hours to go until the end of the subscription period for the $2.7 billion initial public offering of Life Insurance Corporation of India, foreign institutional funds have put in orders for merely 8% of the shares set aside for all institutional buyers.



While the anchor portion of the IPO drew in sovereign funds from Norway and Singapore, most of the shares went to domestic mutual funds.

, have been pulling out heavily in the secondary market since October. The Fed rate hike and the recent slide in the rupee against the dollar further enhances risks of currency depreciation that can erode their asset price gains in India,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in.

“So there is little reason for them to participate in an IPO, large as it may be.”



Dubbed India’s “Aramco moment” in reference to Gulf oil giant Saudi Arabian Oil Co.’s $29.4 billion listing in 2019 — the world’s largest — the float of LIC has ended up resembling the Aramco IPO not just in scale but in its reliance on domestic investors after foreign buyers deemed the float too expensive.

Advertisement

LIC has been seeking to drum up interest with newspaper advertisements since the start of the year, seeking to take advantage of a retail investment boom in India.

India’s government had cut the fundraising of the IPO by about 60% as the war in Ukraine roiled markets, denting risk appetite, while rising US interest rates are putting foreign investors off emerging market stocks. It also cut the valuation it is seeking for the country’s oldest insurer, which would be worth 6 trillion rupees ($78 billion) at the top of the price range.

Advertisement


ALSO READ: LIC IPO: QIB portion including banks, MFs fully subscribed on last day



Locals Pile In

While foreign investors have shunned the deal, retail buyers have been piling in. Policyholders placed bids for over five times the shares reserved for them, while the employee portion received orders for four times the amount available, stock exchange data showed. Retail investors and policyholders receive discounts on the offer price.

Overall, the IPO has received orders for double the shares on offer, while the tranche for institutional investors is now fully sold.

The muted international investor interest stands in sharp contrast to some of last year’s Indian IPOs. One97 Communications Ltd., which operates digital payments firm Paytm, drew in the likes of BlackRock Inc., Canada Pension Plan Investment Board and Teacher Retirement System of Texas, among many others, for its 183 billion rupee share sale last year. Food delivery platform Zomato Ltd. was similarly popular among foreign investors.

Advertisement

However those buyers have been left nursing losses as enthusiasm over India’s tech boom waned after some flops. Paytm sank 27% on its debut and is now trading 74% below its offer price. Zomato had a strong debut last summer but has since lost 20% in value.

Investors have also had concerns about LIC’s ability to keep market share as private insurers like HDFC Life Insurance Co. Ltd. and SBI Life Insurance Co. Ltd. expand. The private sector has been on an aggressive expansion spree during the pandemic, growing new individual policy premiums while LIC struggles.

, Generally, have never been big on state-run companies as it is very difficult to make money off them,” said Abhay Agarwal, fund manager Piper Serica Advisors Ltd. “For LIC too the government was unable to convincingly communicate to global investors that the insurer will prioritize the interest of shareholders and won’t function merely as a government entity.”

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard,

Digital Editor





Source link

Leave a Comment

Your email address will not be published.