The mega initial public offering (IPO) of state-owned General Insurance Corporation of India (GIC Re), India’s largest reinsurance company, garnered just 1.37 times subscription on Friday. The Rs 11,300-crore IPO, largest in seven years, saw bids worth Rs 15,440 crore, of which over half of the bids came from state-owned Life Insurance Corporation of India (LIC). The retail portion of the IPO was subscribed 60 per cent subscription, while high networth individual (HNI) portion was subscribed just 22 per cent. The qualified institutional buyer segment (QIB) was subscribed 2.25 times.
“If not for LIC, the GIC IPO may not have been able to go through. Foreign investors continue to be in a risk-off mode. They have been pulling out money from the domestic market since August. The issuers have to largely rely on domestic institutional support,” said an investment banker.
Overseas investors made application worth just Rs 523 crore, less than five per cent of the issue size. The IPO, third-biggest in the Indian market, saw just 642,000 applications. In comparison, the Rs 1,470-crore IPO of state-owned Cochin Shipyard, in August, had two million applications.
Market players said GIC Re’s offering was one of the rare instances where investor response to a government IPO has been cold.
“Typically, market looks up to any IPOs of state-owned institutions. That wasn’t the case with GIC Re. The pricing was a bit steep and investors thought not enough gains were left on the table. Perhaps, the steep disinvestment target set for this fiscal might have forced the government to peg the valuations high,” said another banker asking not to be named.
The price band for the GIC Re offering was Rs 855-912, valuing the reinsurer between Rs 75,000 crore to Rs 80,000 crore. Retail investors will be given a discount of Rs 45 per share on the allotment price. At the top-end of the price band, GIC Re was valued at 25 times its 2016-17 earnings and four times its book value.
If the IPO is priced at Rs 912 per share, the centre, which sold 107.5 million shares in the IPO, will raise Rs 9,800 crore. GIC Re raised Rs 1,560 crore in the IPO, which will be used to augment its capital base.