On a day when former Kerala finance minister Thomas Isaac took to Twitter to raise questions on the reduced market valuation of the Life Insurance Corporation (LIC) of India, a senior union government official said the valuation was determined by multiple factors, including future cash flows and global factors impacting the market, adding that the government will wait for a year before diluting its stake further in a follow-on issue.
“Sometimes, an expensive valuation results in a Paytm kind of situation. The government has repeatedly stressed that it is for the markets to decide an asset’s real valuation. All shareholders will benefit from the growth in value if the market response is good", the official added.
"Investors are projecting a certain value keeping in mind market volatility. Our intention is to see higher demand (for the shares) post listing. Our embedded value will give a static price as of today. The market will eventually discover a value over the years", the official said.
Isaac's tweet said, "LIC IPO was initially for 10 per cent of holding; reduced it to 5 per cent later; and now further to 3.5 per cent. The market value of LIC scaled down from around Rs 20 to 6 lakh cr. As a result, issue size has declined from Rs 60000 to 22000cr.Why is govt so desperate to sell LIC at any price?"
The union government has now decided to offer 3.5 per cent of its stake in the public issue, as against 5 per cent earlier. “There are global factors that led to the lower stake sale. Recent geo-political developments and withdrawal of foreign portfolio investors are among the factors. As value post listing increases, we will think about diluting more stake after a year", the official said.
Pending a formal announcement on Wednesday, the LIC IPO, which was originally scheduled for March, is now likely to open on May 4.
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