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Life Insurance Corporation of India (LIC) has filed a draft red herring prospectus (DRHP) and as per a media article, they have commenced formal roadshows seeking their participation in the country’s largest public issue to date. As per chatters the IPO will commence in mid-March and get listed in the same month.

As per the offer document, government will sell 5% in the public issue and around 316 million shares are to be sold in total. Even if we safely consider lower end of the market cap suggested by the media article which comes to INR 10.7 tr then its free float market cap will be INR 0.535 tr or INR 535 bn.

As per Edelweiss Alternative Research best understanding, the issue’s free float considered by Index providers won’t be 5% but appx 3.5% which is calculated after excluding the lock in shares. Post which its Free Float Market cap will be INR 371bn or USD 4.98bn. This is considering the stock list at least at the total market cap of USD 10.7tr.

Despite being a lower float name, there is a medium to high probability of stock getting fast entry in the MSCI Index. As in the case of bigger issuances, Index provider do not compulsorily require Minimum Length of Trading Requirement or Foreign Inclusion Factor (FIF) of 0.15.

The most important aspect to be kept on radar will be the issue size and the final listing market cap as anything below INR 10.7tr valuation at listing can make the inclusion difficult. Also Interim market size segment cut off will be an important level to watch out for.  

Timeline for Inclusion- IPOs which are significant in size and meet all the MSCI inclusion criteria, an early inclusion, outside of the Index Reviews, may be considered for inclusion in the Standard Index. If the decision is made to include an IPO early, the inclusion is effective after the close of the security’s tenth day of trading. However, in certain cases, another date may be chosen for the inclusion to reduce turnover, for example, where the normal inclusion date is close to the effective date of the next Index Review.

Hypothetical Inflow could be USD 280mn to USD 500mn depending upon the final listing.

Other Indices- We believe that FTSE Index inclusion shouldn’t happen before the Sep 22 review. Also, we don’t see stock entering Sensex and Nifty 50 Index in the near term as criteria’s for those indices are more stringent.

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