SBI Life's Rs 8,400-cr IPO sails through on institutional demand

A man walks past a podium set up at the venue of a news conference to announce the launch of Initial Public Offering by SBI Life Insurance Co in Mumbai. (Photo: Reuters)
The Rs 8,400-crore initial public offering (IPO) of SBI Life Insurance Company managed to sail through on high demand from institutional investors. The country's leading private life insurer's IPO, however, failed to enthuse retail and high-net-worth individuals (HNIs), with shares in these two categories remaining undersubscribed.

SBI Life's 88.2-million share offering received bids for 314 million shares---3.6 times the shares on offer. Nearly 85 per cent the bids came in the so-called qualified institutional buyer (QIB) segment. The retail portion of the IPO saw 82.5 per cent subscription and the HNI investor portion was subscribed 70 per cent.

The low demand from retail and HNIs was on concerns the "richly-priced IPO" may not result in any short-term gains, said market players. Investment bankers, handling the IPO, said the retail demand was decent considering the size of the offering. In terms of value, retail portion generated demand worth Rs 2,143 crore. Total retail applications were close to a million, said bankers.

Most brokerages had advised their clients to subscribe to the offering with a long-term investment horizon.

The price band for the IPO was Rs 685 to Rs 700 per share. At the top-end, SBI Life was valued at Rs 70,000 crore, 12 times its price-to-book and 73 times its 2016-17 earnings. The offering was priced at 4.2 times its embedded value (EV) for 2016-17. Its closed peer ICICI Prudential Life currently trades at around 3.8 times its FY17 EV.

"While the valuation looks higher compared to other listed financial companies (like NBFCs and private banks), we believe premium valuations are justified," Motilal Oswal had said in a note. "Given that the current valuations are mature, investors can subscribe to the issue from a long-term perspective. However, it must be noted that insurance being a steady business, it may not attract major listing gains," added another note by Centrum.

Brokers said tepid grey market premiums discouraged many HNIs from applying in the IPO. According to brokers, the SBI Life shares were quoting a premium of less than five per cent in the grey market. Total HNI demand stood at less than Rs 800 crore.

The SBI Life IPO was an offer for sale by the State Bank of India (SBI) and BNP Paribas. SBI sold shares worth Rs 5,600 crore and BNP sold worth Rs 2,800 crore in the IPO. SBI Life's IPO was biggest since Coal India's rs 15,300-crore offering in October 2010.

JM Financial, Axis Capital, BNP Paribas, Citigroup, Deutsche Equities, ICICI Securities, Kotak Mahindra Capital and SBI Capital Markets were the investment banks handling the IPO.

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