Thread by @sritara

THREAD
1.As the #LICIPO looms with the NaMo Govt in a headlong rush, here is a thread on why I consider the IPO to be India’s biggest-ever privation scam - based on an article that will appear later today.

2. The revised offer is for 3.5 % of the Govt stake in LIC - amounting to 22.1375 crore shares - instead of the 5% planned earlier - amounting to offer of 31.625 crore shares. As a result, the size of the offer falls from about Rs 70-75,000 crores to about Rs. 21000 crores.

3. The “quantity effect” in the revised offer arises from the shares on offer being 30 per cent lower than previously planned. But the price effect is at play here, which is why this is a scam, the biggest in annals of Indian privatisation

4.Let me explain: The absolute base value of the LIC share, based on its Embedded Value (EV) was estimated at Rs. 5.40 lakh crores in Sept 2021. The per share base value (for 632.5 crore shares) thus is Rs. 853. This isn where the plot thickens.

5. The EV of a life insurance company is NOT a reliable and full measure of a worth of an insurance comp[any, which is why every insurer applies a multiplication factor to the “base”
price to arrive at the issue price.

6. Typically, in the three most important private life insurance IPOs the multiplication factor has ranged from 2.5 to 3 times the EV. LIC, being the biggest insurer was also expected to offer shares using such a factor.

7. It now turns out that the multiplication factor has been scaled down to just 1.1 times the EV. What does this mean? A factor of 2.5-3 would have meant a per share price range of Rs. 2133-Rs. 2559. Scaling down to 1.1 means that the price/share is now down to Rs. 938.

8. The original range of the multiplication factor would have yielded Rs. Rs. 47,219-56,650 crores. The yield is now down to Rs. Rs. 20,765 crores. The implicit loss is Rs. Rs. 26,443-35,885 crores. If this is not a scam, what is?

9.But that is not all. The entire valuation is based on the expropriation of funds belonging to LIC policyholders. The changes to the LIC Act, dubiously enacted through a Money Bill last year has deprived policyholders’ rights to surplus built over decades by their contributions

10.The Govt is not the main loser, policyholders AS A CLASS are. The discounted valuation is in response to haranguing by investors, particularly, anchor investors and others who have contributed zilch to LIC in the decades since 1956. Instead policy holders have been ripped off.

11. The offer of a portion of the IPO for policyholders is akin to a bribe to SOME policyholders whereas they have been expropriated en masse.

12.A question to ponder: can you think of any IPO anywhere in the world where a company has offered shares at discounted prices to its so-called customers? Can you imagine PayTM offering shares at such discounts to its users?

13.This is an important question because of the unique character of the LIC - nothing like it exists anywhere in the world. It was always structured as a mutual company or a giant cooperative society.

14.The LIC/Govt offered a discount to its “customers” only because they realise the unique status of policyholders. Remember, between 1956 and 2011, the Govt equity in LIC was just Rs 5 crore. Even compensation to insurance companies after nationalisation came from policyholders!

15. In the original scheme for the LIC the Govt acted as a trustee. That trustee, now turned rogue, pretenbds tio be the owner. This IPO is the first step towards the demolition of the LIC, India’s most popular institution. (END)

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