LIC has not received board mandate to invest beyond Rs 300 cr in Adani FPO

Will engage with Adani management for clarifications Hindenburg charges

State-owned Life Insurance Corporation (LIC) will not invest over the board-approved limit of Rs 300 crore in the follow-on public offer (FPO) of Adani Enterprise even as it plans to engage with the business conglomerate to seek clarification over charges made by Hindenburg Research.

In an interaction with Business Standard, LIC’s managing director Raj Kumar said that the insurance behemoth's board approved an investment of Rs 300 crore as anchor investor.

“The investment in the FPO was done with the approval of the board. We have invested Rs 300 crore in FPO as anchor investors. At present, there is no mandate by the board to invest further in the FPO as an institutional investor,” Raj Kumar said.

He said the insurer is currently studying the Adani Group's response to the US research firm and will engage with the group for further clarification. The Adani group shared a detailed response to Hindenburg's charges late Sunday evening.

“We will look into the emerging situation and study the reply given by the Adani group and engage with the management to seek further clarifications. It’s not only LIC, other investors will also try to engage with them. We will definitely have a discussion with their management to understand their point of view. At present, we are studying Adani Group’s reply,” LIC’s MD said.

In its response on Sunday to the report published by the American short seller, the Adani Group said the document was a “malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive”.

Some 65 of the 88 questions have been addressed in Adani’s public disclosures and the conduct of the American short-seller is nothing short of a calculated securities fraud under applicable law, it added.

US-based Hindenburg Research had published a 100-page document last week, alleging that the Adani Group, one of India’s largest conglomerates, had engaged in “brazen stock manipulation and accounting fraud scheme”. The report was released on the eve of the Adani FPO.

This led to a meltdown in Adani Group shares on Friday last week, causing its investors, including LIC, to lose huge amounts of money.

On Monday, LIC said in a statement that it has an investment of Rs 36,474.78 crore in the Adani group by way of equity and debt as of date.

The total purchase value of equity under all the Adani group companies, bought over the past several years, is Rs 30,127 crore. The market value of this holding at the close of market hours on January 27 was Rs 56,142 crore, the insurer said.

LIC's investments in the Adani Group constitute just 0.975 per cent of its total asset under management (AUM). As of the September quarter, LIC had an AUM of Rs 41.66 trillion.

“It may be appreciated that the credit rating of all of the Adani debt securities held by LIC are AA and above, which is in compliance with Irdai investment regulations as applicable to all the life insurance companies,” LIC clarified in its statement.  

“Even after the fall in share prices, LIC’s gain in the equity investments is over Rs 25,000 crore. Market fluctuations do happen on a day-to-day basis. Since we are long-term investors, we look at the long-term perspective while making any investment,” Kumar said.

Kumar explained that LIC invests in the equities of companies in the BSE 500 or Nifty 500. The insurer has an in-house risk assessment tool called “equity evaluation metrics”, which has a maximum score of 90. Any company with a score of under 50 isn't eligible for investment from LIC, he said.

It may so happen that a company having a score of 50 or more at the point of investment, may see its score come down subsequently. "So, LIC may have invested in that company when its score was above 50, but it may not make further investments when the score falls below 50. This is a robust board-approved process that we follow," Kumar further said.

As far as LIC’s liabilities is concerned, the insurance behemoth has assets matching all policy liabilities. These assets are assessed on the book value, not on mark-to-market gains. “We have an available solvency margin of Rs 2.2 trillion as of September 30, 2022 on a book value basis. So, there is no concern for us at present,” Kumar said.

“The LIC Board and its management are committed to and conscious of their responsibilities towards all the stakeholders and will continue to follow appropriate principles and practices to safeguard their interests at all times,” the state-owned insurer said.