India's third biggest initial public offering or IPO is opening today for subscription. State-run reinsurer General Insurance Corporation of India Limited or GIC Re will open its IPO to raise Rs 11,370 crore public money. Earlier this month, GIC Re issued a public notice in which it set a price range of 855-912 rupees per equity share. If fully subscribed at the upper end of the price band, this will be India's third biggest IPO after Coal India and Reliance Power. In 2008, Reliance Power raised Rs 11,700 crore and two years later in 2010, Coal India raised Rs 15,200 crore through public offerings. This will also be the first time when India's primary market will see public offering by a reinsurer player in the country.
In the state-owned GIC Re IPO , the government will sell 107.5 million shares, while the company will raise funds by selling 17.2 million new shares. Banks such as Citi, Axis Capital, Deutsche Bank, HSBC and Kotak are managing the GIC Re IPO. According to reports, the government's move has come to meet the fiscal deficit target of 3.2 percent during the year by pesting some of its stakes in state-run companies.
GIC Re has net worth of close to Rs 50,000 crore and total assets of Rs 100,000 crore. The weighted average earning per share (EPS) for 2016-17 is at Rs 32 per share. The estimated market valuation of the corporation, as per the market, will be around Rs 1,00,000 crore. With today's subscription offerings, GIC could emerge as the top ten most valued public sector companies in India.
Amongst the financial services especially listed banks, the GIC will be next to State Bank of India. The second largest PSU bank in term of market capitalization is Bank of Baroda, which is at Rs 71,017 crore. This IPO is a big opportunity for retail investors to take part in a well run PSU. After Coal India in 2010, GIC will be the largest PSU IPO that will be listed on the domestic bourses.
The price discovery in GIC will lessen the burden of government for recapitalization as it can raise resources directly from the market. Given the high growth post agriculture and health insurance, GIC will require capital for expansion. With this move, GIC will join the elite PSU club. Currently, the top listed PSUs are SBI, Indian Oil, ONGC, Coal India, NTPC, Power Grid and HPCL. State Bank of India has the highest market capitalization of Rs 2.42 lakh crore followed by OIC, ONGC, Coal India and others. HPCL, which is at the ninth place, has a market capitalization of Rs 1.10 lakh crore. GIC is mostly likely to take the 10th place or even move higher depending upon the listing price.
However, there are other factors to consider before investing. While the issue looks good, there are also risk in the re-insurance space as the exposure of GIC is increasing big time in the agriculture sector. The corporation has seen a huge jump in the agri reinsurance premium from Rs 644 crore in March 2015 to Rs 9,752 crore in March 2017. Many say the agri-reinsurance is a new business for GIC where there is no past track record. "It's a high risk business," says a market player. In addition, the global re-insurers are also gradually increasing their presence in India, which has the potential to upset the calculations of GIC. In fact, global players are allowed underwrite business in India without setting up a brick and mortar office.
In the first quarter of the current financial year, GIS Re had booked net profit of Rs 390 crore massively down from Rs 704 crore a year ago. GIC chairman Alice G Vaidyan said that the profit was down due to the changes in actuarial calculation as well as higher provisions made for a possible losses arising from the Prime Minister's crop insurance scheme under the IBNR (incurred but not reported) losses. Driven by crop reinsurance, its gross premium grew 189 per cent at Rs 17,195 crore for reporting period from Rs 5,941 crore a year ago.
(With inputs from PTI)