India’s financial market reforms continued to show progress last week after New India Assurance and HDFC Standard Life Insurance raised over $2.8 billion from initial public offerings, adding two prominent names to the domestic stock market's young insurance sector.
Pricing of HDFC Standard Life’s Rp87 billion ($1.33 billion) IPO, which was fixed late Friday at the top end of the marketed Rp275 to Rp290 per share price band, came days after state-owned New India Assurance also sold shares at its highest targeted price, raising $1.5 billion in the process.
The IPOs are part of an accelerated push by the Indian government to liberalise the country's century-old insurance market, improve the efficiency of state-owned insurers by exposing them to greater public scrutiny, and grow the pool of insurance capital eligible for investment in other Indian assets. So far, they are meeting with keen investor interest.
Some $6.7 billion has now been raised in the current fiscal year from Indian insurance company listings, underscoring just how much investor demand there is for the country's burgeoning and potentially vast insurance market.
Despite heady valuations, New India Assurance and HDFC Standard Life Insurance are the fourth and fifth insurance companies to come to market so far in 2017/18 after SBI Life Insurance, ICICI Lombard, and General Insurance Corporation of India.
National Insurance could be next after the state-owned firm filed for an IPO last month, which could total about $550 million. The Indian government also hopes to list Oriental Insurance and United Insurance before the end of March next year.
Private sector insurers look keen to get to market too, with Reliance General Insurance possibly at the forefront after the company filed for an IPO last month. Other potential candidates include PNB Metlife and SBI General Insurance.
Initial scepticism
With nearly $4 billion-worth of insurance-related equity already sold in the preceding months, there had been some scepticism in the market over how easily New India Assurance and HDFC Standard Life would be able to come to market.
But these initial worries proved to be unfounded after HDFC Standard Life reported that its deal was 4.9 times oversubscribed (16.6 times in the case of the Qualified Institutional Buyer tranche and 2.3 times for the non-institutional tranche). New India Assurance’s IPO, which was largely sold to domestic investors at Rp800 per share, was oversubscribed by just 19% overall (2.3 times for the QIB tranche).
Both IPOs were able to price at the top of their respective price bands, which extends the recent track record of premium pricing for Indian insurance IPOs and shows investors have few concerns over the sector's relatively rich valuations compared with other Asian insurance markets.
If anything, valuations have risen since ICICI Prudential Life listed in September 2016 at an embedded value (EV) of 3.44 times. Since then, Indian insurance companies have been able to list at more than 4 times embedded value. Both New India Assurance and HDFC Standard Life were priced at about 4.2 times EV on a one-year forward basis.
The joint global coordinators on HDFC Standard Life’s IPO were Morgan Stanley, HDFC Bank, Credit Suisse, Citic CLSA and Nomura, while Edelweiss, Haitong Securities, IDFC Bank, IIFL, and UBS were book-running lead managers.
The joint book-running lead managers on New India Assurance’s IPO were Kotak Mahindra, Axis Capital, Nomura, IDFC Bank, and Yes Securities.
