Instead they have been the opposite — NIA opened 6% down and lost as much as 10% on its debut this week. GIC Re, India’s biggest listing in seven years, has also fared poorly, dropping 10% since its debut at the end of October.
LIC was a common factor in both IPOs. It is understood to have mopped up two-thirds of the institutional tranche in GIC Re, and also bought 60% of the IPO shares in NIA, gaining a 8.7% stake in the listed entity. For context, the government retains 85% of NIA.
NIA and GIC Re were priced at the top of expectations and their bookbuilds were oversubscribed. But that was mainly thanks to LIC’s help, as retail and other investors steered clear of the share sales.
The dismal secondary performance led the joint secretary of the Department of Investment & Public Asset Management, the government body in charge of state asset sales, to say this week that it will look at what happened with NIA and GIC Re when pricing future insurance IPOs.
If only India’s heavy-handed state apparatus had read the tea leaves right. NIA and GIC Re were overpriced from the start, and investors saw through that, giving the government little option but to go to LIC for support.
NIA, for instance, was by some estimates priced at five times its 2017 book value and 76 times earnings, compared to its listed private sector peer ICICI Lombard General Insurance Co’s eight times book and 48 times earnings. NIA also fared poorly on return on equity at 7% versus 17% for ICICI Lombard.
In a record year for Indian IPOs, it could have easily gone the other way. NIA and GIC Re could have sought market feedback and come out at a more palatable level for investors, rather than trying to maximise value only for the government.
After all, good secondary trading creates additional value for shareholders and goodwill for future issuance. LIC’s rescue and the subsequent poor performance of NIA and GIC Re have instead cast a pall over the IPO prospects of National Insurance Co, Oriental Insurance Co and United India Insurance — three more insurers the government is hoping to sell.
This is of course not the first time LIC has come riding to the rescue — it has cultivated a reputation over many years as a lender of last resort and backstop for failed Indian government deals.
The purpose of government divestment through an IPO, however, should not only be monetisation, but also liquidity for the public and the discovery of a market price. The state needs to look at the long term.
In rescuing the two IPOs, LIC may have saved face for the Indian government. But it has also shown how its white knight approach is simply untenable.