SBI Life Insurance, a unit of India's largest lender State Bank of India, will hit the capital markets with its initial public offering next week at Rs 8,400 crore ($1.3 billion). The whopping billion dollar offer has set the stage for yet another strong year for capital market fund raising in India.
The IPO is essentially an offer for sale by promoters, SBI and BNP Paribas Cardif, and the company is not raising any fresh funds for itself.
The issue has been priced in the Rs 685-700 per share range and will be open for subscription from September 20 to September 22. It is expected to get listed in the bourses on October 3.
A strong bullish run of India's equity markets has had a positive impact on the primary market. This year till August, 17 companies had raised over Rs 14,185 crore by going public.
Analysts expect the total fund raising this year to easily surpass the Rs 26,494 crore raised via IPOs in 2016, with several marquee issues that are expected.
India's insurance sector, until recent times, largely consisted of unlisted firms. But now many among the private sector companies are as mature, in size and scale, as the public sector companies. With the government looking to pare its stake in the public sector insurance firms, the floodgates are slowly opening.
Last year, ICICI Prudential Life Insurance, a unit of India's largest private sector bank ICICI, raised around Rs 6,000 crore via its maiden IPO.
ICICI Bank's general insurance unit ICICI Lombard will hit the markets on Friday, with a public offering of close to Rs 5,700 crore.
HDFC Standard Life Insurance also filed papers with Securities and Exchange Board of India (SEBI) earlier this year to raise an estimated Rs 7,500 crore via an IPO.
State owned general insurance firms are expected to be the next in line to get listed. General Insurance Corp (GIC Re) and New India Assurance have already filed their papers for an IPO and others like United India Assurance and Oriental Insurance are likely to follow.
Will investors have the appetite for so many insurance IPOs? India's insurance market is significantly under-penetrated compared to many other countries, and there will be huge growth opportunities, say company executives and sector analysts.
“We are in a country, which is looking at huge amount of growth and a young country, which is just about to realise the need for insurance,” said Arundhati Bhattacharya, chairperson of SBI, while detailing the plans for the IPO of SBI Life Insurance.
“In India, because of the joint family system, the need for insurance was not felt till about our generation. Now more and more awareness is getting generated about the need for insurance and therefore we feel, though the insurance penetration is still not at a level we would like it to be, it is something that is definitely going to happen,” added Bhattacharya.
Currently, SBI holds 70 per cent stake in SBI Life Insurance, while BNP Paribas owns 26 per cent. In December last year, SBI sold about 4 per cent in SBI Life to KKR and Temasek.
In the IPO, SBI is selling close to 8 per cent stake, while BNP Paribas will shed about 4 per cent of its stake. It has been profitable since 2005-06 and is a market leader in the private insurance space, with a 20 per cent market share in terms of new business premiums.
“Life insurance industry is in a sweet spot. Significant headroom is still available for growth due to low penetration and favourable demographic profile,” said Vishal Goyal, executive director, at UBS Securities.
He expects premium growth to “accelerate” in the insurance sector, aided by a pickup in GDP growth.
The under penetration is not just in life insurance, but also in the general insurance side.
The insurance penetration was only 3.3 per cent in 2014, which rose to 3.44 per cent in 2015 and is expected to cross 4 per cent this year, according to a report by industry body Assocham.
In a population of 1.1 billion, for instance, only about 360 million are covered under some form of insurance.
“According to CRISIL research, gross direct premium income (GDPI) for non-life insurers is projected to register 15-20 per cent compounded annual growth rate over FY2017-2022. Improving economic growth, higher awareness of risk with higher disposable incomes, emergence of new risks and a strong regulatory focus on improving insurance coverage are expected to be the key catalysts of sector growth,” said a report by IIFL Investment Managers this week.
Among the listed insurance players, shares of ICICI Prudential Life Insurance have risen 30 per cent since listing on September 29, 2016. Max Financial Services, the holding company of Max Life Insurance, has gained over 8 per cent in 2017. Max Life had proposed a merger with HDFC Life Insurance, but the deal was called off earlier this year, after the companies failed to get regulatory approval.