The Life Insurance Corporation of India logo outside the company's office in New Delhi. Photo: AFP / Nasir Kachroo / NurPhoto

The Indian government is planning to scale back its move to dilute its share in state-owned insurer Life Insurance Corporation in the wake of economic uncertainty caused by the Russia-Ukraine war and choppy capital markets, according to various media outlets.

The government has now decided to sell 3.5% of its shares in India’s largest life insurer, a step down from its earlier plan to sell 5%, subject to the approval of capital markets regulator the Securities and Exchange Board of India.

The Life Insurance Corporation board has approved the latest move to cut its initial share sale, Business Standard reported.

The size of the initial public offering will now be 210 billion rupees (US$2.74 billion) and it will still be the largest initial share sale in India’s corporate history. The record is held by digital payments major Paytm at 180 billion rupees.

In its earlier draft red herring prospectus, the government stated it would sell 5% of its shares, or 316 million shares.

There was also a drastic reduction in valuation. Earlier government estimates had called for the insurer to be valued at about 17 trillion rupees ($221 billion), but now it will be valued at 6 trillion rupees ($78 billion).

The move follows feedback from institutional investors, who cited how similar entities were valued globally, notably Ping An Insurance of China. It is also influenced by a sustained trend of capital outflows from the Indian and other emerging-economy markets after the Russian invasion of Ukraine.

The government will file the red herring prospectus for the issue this week. The stake sale is expected to be launched in the first week of May.

Life Insurance Corporation was initially slated to go public in the last financial year that ended March 31. However, it was put on hold after Russia’s Ukraine invasion and the following market uncertainty.

The 66-year-old company dominates India’s insurance sector with more than 280 million policies and had a market share of over 64% in 2021.

Market analysts see this drastic lowering of the valuation as a setback for the government, which aims to lower its stake in public enterprises in order to replenish state coffers. The government now hopes the valuation will rise after listing.

BPCL sale

Meanwhile, the government has decided to revisit its plan to sell its entire 53% stake in oil marketing company Bharat Petroleum Corporation Limited.

It is reportedly not keen on going ahead with the current format. Three expressions of interest (EoIs), including one from billionaire Anil Agarwal-led Vedanta Group, have been received. The others include private equity firms Apollo Global and I Squared Capital’s arm Think Gas.

Anil Agarwal told Moneycontrol on Monday that the Bharat Petroleum divestment may not happen. “They’ve said that they have withdrawn the offer, they will come back with a new strategy.”