MUMBAI: New India Assurance Co Ltd's shares tumbled 9 percent in their trading debut on Monday after a $1.5 billion initial public offering (IPO), casting a shadow over the government's plans to list three other state-run insurers.
The IPO of the country's top non-life insurer by premium income raised about 96 billion rupees ($1.47 billion) for the company and the government, which fully owned New India before the offering.
But with a price far above a comparable offering this year, subscriptions reached just 1.2 times the shares on offer, indicating low demand, with the majority of the bids coming from state-run Life Insurance Corp (LIC).
India is enjoying a record year for IPOs with over $11 billion of funds raised, mainly driven by five big insurance deals. But high valuations have translated into weak post-listing share price gains for the insurers.
New India's listing follows that of state-run reinsurer General Insurance Corp of India (GIC Re), whose shares have lost about 11 percent since their Oct. 25 debut following India's biggest IPO of the year so far at $1.7 billion.
The government plans to list three other state-run general insurers as part of its asset sales programme to meet a budget deficit target, while a change in regulation that has spurred insurer IPOs this year will likely extend to next year with more insurance companies planning share sales, analysts said.
"All the biggies have found it difficult to sail through (their IPOs) so obviously the smaller ones will need to be priced at adequately attractive levels," said Arun Kejriwal, founder of Kejriwal Research & Investment Services.
Anuradha Thakur, joint secretary at the government's divestment department, told reporters in Mumbai on Monday that market sentiment would be taken into consideration after the GIC Re and New India IPOs to decide the timing and pricing of the next insurer sales.
VALUATIONS
New India is the second non-life insurer to go public after private-sector rival ICICI Lombard General Insurance Co Ltd earlier this year.
The IPO price valued New India at 76 times its earnings per share for the year ended March 2017, compared with ICICI Lombard's 48 times, Mumbai brokerage Angel Broking said in a pre-sale research note. New India's return on equity has lagged ICICI Lombard's in the last five years, the brokerage also said.
Upcoming insurance IPOs must give more consideration to valuations to ensure success, said Angel Broking analyst Jaikishan Parmar.
State-owned LIC, which typically bids heavily in state-run company share sales, bought nearly 60 percent of the shares sold in the New India IPO, gaining an 8.7 percent stake in the company, according to a regulatory filing on Monday. The Indian government still owns about 85 percent of New India.
New India shares closed 9.1 percent lower at 727.10 rupees, having fallen to as low as 717.40 rupees. That compares with its IPO price of 800 rupees, although retail investors and employees were given a 30-rupee discount.
The benchmark Nifty 50 share price index fell 0.94 percent.