LIC shares dive nearly 9% as India launches up to $3.3 billion stake sale

India’s offer to sell as much as 6.5% of Life Insurance Corporation of India (LIC) attracted bids covering the enlarged non-retail allocation 1.28 times on Tuesday, 4 August, even as shares in the country’s largest insurer closed almost 9% lower.

Non-retail investors bid for about 947.4 million shares against about 740 million available to them, including the additional shares under the government’s oversubscription option. The offer’s cut-off price for the expanded allocation was ₹383.10 a share, according to exchange-sourced bidding data.

LIC shares closed at ₹391.30, down 8.7% from Monday’s closing price of ₹428.50. The stock fell as much as 9.26% to ₹388.80 during the session, its lowest level in nearly four months, before recovering part of the decline.

The decline was substantially larger than the fall in the broader market. The Nifty 50 ended 0.64% lower at 24,614.90, while the Sensex declined 0.27% to 78,428.95.

The government disclosed the transaction after the market closed on Monday and opened bidding for institutional and other non-retail investors at 9:15 am on Tuesday. Retail investors will be able to bid on Wednesday.

The government set a floor price of ₹382 a share, 10.9% below LIC’s Monday close on the National Stock Exchange. The discount gave investors a lower-priced route to buy the stock and pulled its market price toward the offer level. The prospect of hundreds of millions of additional shares entering public ownership also created a large short-term supply overhang.

Under the offer, the government is initially selling as many as 316.25 million shares, representing 2.5% of LIC’s equity. It has the option to sell another 506 million shares, or 4%, taking the maximum transaction to about 822.25 million shares, equivalent to 6.5% of the insurer.

Of the expanded offer, about 740 million shares were available to non-retail investors on Tuesday. They submitted bids for about 947.4 million shares, equivalent to 3.33 times the base non-retail offer and 1.28 times the allocation after including the additional 4% stake. The expanded non-retail offer cleared at ₹383.10 a share.

The demand means the government has sufficient institutional bids to sell the full non-retail allocation, including the oversubscription portion. Retail bidding on Wednesday will determine the take-up of the shares reserved for individual investors and the transaction’s final proceeds.

At the floor price, the initial 2.5% sale would raise about ₹12,080 crore, or $1.27 billion. Selling the full 6.5% would generate about ₹31,410 crore, equivalent to about $3.3 billion at current exchange rates. Proceeds could be marginally higher because the institutional cut-off price was above the floor.

At least 10% of the shares offered are reserved for retail investors, while at least 25% of the non-retail allocation is reserved for mutual funds and insurance companies, provided they submit valid bids at or above the applicable price. Retail investors will receive a discount of ₹10 a share on the cut-off price. The government has also reserved 5 million shares for eligible LIC employees.

An offer for sale allows an existing shareholder to dispose of shares through a dedicated exchange window. LIC is not issuing new stock and will not receive the proceeds. The money will go to the Indian government, and the total number of LIC shares will remain unchanged.

The sale had been anticipated. Reports in May said the government was considering selling about 2% of LIC and raising roughly ₹10,000 crore. The formal transaction, however, could raise more than three times that amount, and its final terms were disclosed only hours before the market reopened.

The government currently owns 96.5% of LIC, with public investors holding the remaining 3.5%. If it sells the full 6.5%, its holding will fall to 90%, increasing public ownership to 10%.

LIC is required to reach 10% public shareholding by 16 May 2027. Arunish Chawla, secretary of the Department of Investment and Public Asset Management, said the offer would help the insurer achieve its minimum public-shareholding milestones ahead of schedule.

The transaction is the government’s first further sale of LIC shares since the insurer listed in May 2022. The initial public offering sold 3.5% of the company and raised about ₹20,560 crore, making it India’s largest IPO at the time.

A fully completed sale would also provide a major lift to India’s divestment program. The government has set a combined divestment and asset-monetization target of ₹80,000 crore for the fiscal year ending March 2027 and had raised about ₹21,200 crore before the LIC transaction.

Full proceeds from the offer would take that total beyond ₹52,600 crore, or about two-thirds of the annual target.

The immediate share-price decline does not by itself indicate a deterioration in LIC’s insurance business. It largely reflects the discount offered by the government and the sudden availability of a large quantity of stock.

Institutional demand was nevertheless strong enough to absorb the entire enlarged non-retail allocation. Retail bidding on Wednesday and the final allotment will determine how much of the 6.5% stake is ultimately sold, but Tuesday’s order book indicates that the government is well placed to complete the transaction near its maximum size.