Scott Murdoch, Aftab Ahmed, and Nupur Anand

MUMBAI (Reuters – Potential investors in Life Insurance Corp of India’s (8 billion) IPO seek assurances from the company that they will not be sacrificed to reach the goals of its controlling shareholder, the government.

Four experts said the IPO bankers and LIC management were challenged with questions on the past and present investments of the insurer during the virtual roadshows.

The LIC was a significant buyer in shares of state-owned businesses sold off by New Delhi in recent years. It often bails out unfavorable public offerings of shares. The bank has been used to bail out financial institutions in trouble.

Sources said potential conflicts of interests issues have been the focus of the IPO roadshows, which began last week. They are scheduled to continue until the end of March.

Shriram Subramanian (founder of InGovern proxy advisory firm), said that the government acts as both a manager, regulator and shareholder. He has never attended roadshows.

Subramanian said that government ministries might believe that LIC is 100 percent under their control. He also suggested that they would be willing to exercise that influence whenever necessary.

The effectiveness with which LIC and its investment banksers address investor concerns will determine the value of the insurer in the float and, consequently, the financial state of India’s government. This is because it relies on the proceeds of the IPO for fiscal balance hole plugging.

Emails to the Finance Ministry for comment were unanswered. LIC, however, declined. Because the conversations are confidential, sources could not be identified.

In the draft prospectus, the insurance company cited government involvement as a risk factor. Currently, LIC is owned 100% and it is anticipated to hold about 95% by the IPO.

M R Kumar (chairman of LIC) stated that the government does not have control over the IPO and potential investors need not be concerned about it. The board makes the decisions, not the government.

PARALLELS FOR COAL INDIA

LIC was founded six decades ago in India when the Indian insurance sector was nationalised. It currently controls more than 280m policies and accounts for over 60% of India’s insurance market.

The prospectus shows that it’s also a major investor with 23.5 trillion rupees worth ($315billion) in government securities. That is more than the central banks.

As the government failed to find a buyer, it purchased IDBI Bank in 2019 after its shares plummeted and nearly one-third of its books had gone bad.

In its draft documents, LIC stated that it might have to inject more capital into IDBI Bank, even though it had been pursuing a buyer of its greater than 50% share in the lender.

Market analysts and managers draw parallels between LIC and Coal India. Coal India made its debut on the market in 2010, but has since lost more than half of its equity value.

Pramod Agrawal (Coal India Chairman and managing Director) stated in its earnings call that one reason for the low valuation of its stock market is because government sometimes takes actions not well-received by shareholders.

“If LIC makes decisions that are not beneficial for the shareholders then they will raise concerns,” said Ashvin Parekh, an independent financial services consultant.

We have witnessed this happen before with Children Investment Fund, which was forced to leave state-owned Coal India due to concerns about the actions of its majority shareholder. LIC may also be subject to similar pressures from shareholders.