Pulling off a mega IPO is never going to be easy. To raise huge sums of capital requires mass following, great investor appetite, right signalling, and facilitation. Ironically, such IPOs almost always disappoint the participants after listing. Bringing together so many people to participate in an IPO is only the beginning. Living up to the expectations is the real process.
IPOs often end up rewarding sellers and punishing buyers. When an IPO is an offer-for-sale (OFS) that reward-punishment equation becomes even more stark. That is why the pricing of an IPO, especially a mega IPO, becomes extremely critical. Coming from the Government, this criticality becomes even more sensitive. Imagine a Government selling an IPO at a valuation which is aggressive, and then facing up to the public response on listing. That’s certainly not desirable for all stakeholders. This understanding seems to have prevailed in the pricing of the LIC IPO.
Given the lack of history in ascertaining its embedded value, the need to sustain its business growth, and the compulsion to sell more equity in the future, this IPO comes with clear sweeteners. The Government has decided to make the issue size smaller, more attractive, and safer for investors. This does not mean that the value of the company stands compromised or the investor runs serious risks by participating in it. All that the pricing messages is that the Government wants this IPO to succeed for stakeholders, create confidence in future issuances, and restore the credibility of the public sector undertaking (PSU) in the eyes of the stock market. While it remains to be seen how this is accomplished. The LIC IPO is a clear indication of the commitment of the Government to give it an honest attempt and to work persistently towards improving stakeholder interest.
Given the poor reputation of the private sector in delivering to stakeholders through mega IPOs, this probably should be very doable by the Government. The stock market needs mega IPOs to succeed for the investors who support the issue. The LIC IPO is a clear litmus test.