With warchest, LIC eyes pre-IPO deals

On a high after the government allowed it to hold up to 30% stake in any single company, the Life Insurance Corporation (LIC) of India, the largest institutional investor in the country, has started eyeing pre-initial public offer (pre-IPO) deals.

The corporation is awaiting a final word from its investment committee to go ahead with the plan, a senior official told DNA on the condition of anonymity.

“We have a huge fund, out of which we will have to decide how much can be availed for pre-IPO deals,” he said.

Under pre-IPO deals, institutional investors can offer to buy a certain percentage of stake in a company that is planning an IPO. Companies typically keep the gates open for pre-IPO investors for six months to a year before the shares are offered to retail investors through the float.

From the institution’s point of view, such deals can be lucrative investment avenues. Though the price at which the stake is brought is a matter mutually agreed upon by the parties, institutions tend to get the shares at discounted prices. For instance, if a company plans to issue shares at Rs100 apiece, institutional investors might get it at, say, Rs80.

However, their investment is usually locked in for a year or so. “This benefits the company by ensuring it has committed investors for some more time,” said an IPO expert, also requesting anonymity.

Institutions typically look at the size of investment and the track record of the company planning IPO before saying yes to it.

Among recent pre-IPO deals are KKR’s $75 million investment in Avantha Power and Infrastructure and Chrys Capital’s $57 million wager on Intas pharmaceuticals.

LIC’s entry is bound to heat up the segment. The insurer, which manages assets worth 13 lakh crore, largely invests in the government’s divestment programme. As of December 11, LIC’s investment in listed government stocks stood at Rs90,700 crore.

For the current quarter, LIC has set an investment target of Rs2.4 lakh crore, including debt and equity. Of this, around Rs60,000–65,000 crore has already been invested.

“It makes sense for LIC to explore this investment avenue and enter as anchor investor. There is nothing wrong in taking this route aggressively. The risk will be limited for the institution and it can take the advantage of better and large allotments,” said the IPO expert.