The Indian government opted for international experience in choosing arrangers for Life Insurance Corporation of India's Rs400bn–Rs500bn (US$5.5bn–$6.8bn) IPO, giving a surprisingly prominent ranking to foreign banks such as Goldman Sachs for the country's largest ever float.
Sixteen banks put in bids for the 10 roles in the high-profile privatisation and the Department of Investment and Public Asset Management picked Kotak, Goldman Sachs, JP Morgan, ICICI Securities, JM Financial, Citigroup, Nomura, Axis Capital, Bank of America and SBI Capital Markets based on their technical abilities and financial bids. The bidders ranked 11th to 16th – HSBC, IIFL, HDFC Securities, BNP Paribas, Yes Securities and Dam Capital – missed out.
Goldman’s number two spot surprised many market participants as it has not been a dominant player in India's equity capital markets. Refinitiv data show Goldman is placed 11th in the Indian ECM league table year to date after coming sixth in 2020 and eighth in 2019.
“The rankings just show it doesn’t pay to do all those tough government deals for one rupee. Someone with a pedigree can walk away with the jewel,” a Mumbai-based ECM banker said.
The top 10 banks bid the minimum fee of Rs10m, the first time Dipam has indicated such a high starting fee. Previously bids of as little as Rs1 were allowed on transactions for state-owned entities.
Like most other foreign banks, Goldman has not been very active in managing ECM deals for state-owned companies.
In March, after a gap of some years, it co-managed the government’s Rs33bn stake sale in Tata Communications, formerly called Videsh Sanchar Nigam. VSNL was privatised in 2002 through the sale of a 25% stake to Tata Group.
Market participants attribute Goldman's high ranking to its track record on privatisations in the rest of Asia, having worked on some major deals from Chinese insurers. The US bank was the Hong Kong IPO sponsor China Pacific Insurance in 2009 (US$3.1bn), People’s Insurance Co (Group) of China in 2012 (US$3.1bn) and the US$1.89bn dual Hong Kong and Shanghai IPO of New China Life Insurance in 2011. In 2015, Goldman was one of the four lead banks that helped Japan’s government privatise Japan Post Insurance via a ¥145bn (US$1.3bn) IPO.
Goldman also invested US$35m in Ping An Insurance (Group) Co of China a decade before its 2004 US$1.8bn Hong Kong IPO, making the company the first Chinese insurer to include foreign shareholders. That experience will be valuable to LIC, which is reportedly considering bringing in foreign investors before its IPO.
JP Morgan, ranked third, has also not been very active in managing state-owned company deals and its last involvement in a major transaction was in the sale of the government’s stake in Steel Authority of India in 2014. However, it has been active in India ECM, having topped the league table last year. So far this year it is ranked fifth.
Typically in Indian IPOs of state-owned companies all the banks on the transaction are given the lead manager title.
Positive outlook
The government is aiming to launch the IPO by March and demand is likely to be strong based on the currently bullish sentiment in both primary and secondary markets.
All three listed life insurers – HDFC Life Insurance, ICICI Prudential Life Insurance and SBI Life Insurance – have traded very well since their respective IPOs. There have also been a dozen blocks combined in HDFC Life and SBI Life and they have all met with a positive response.
"It is rare that we get a market leader coming with an IPO and let us remember that the life insurance sector has been open to competition for a decade and half, and LIC has still managed to maintain its lead position,” another ECM banker said.
The government owns 100% of the life insurance company. A panel led by finance minister Nirmala Sitharaman will decide on the size of the holding to be sold through the IPO.
At an estimated market capitalisation of Rs8trn–Rs10trn, a minimum 5% free-float would lead to an IPO of Rs400bn–Rs500bn. The Securities and Exchange Board of India recently reduced the minimum free-float for large companies to 5% from 10%.