Troubleshooter: LIC hand in 4 of 6 public sector share sales in 2018

LIC also bought 7 per cent stake in the defence company for Rs28.4 bn

Life Insurance Corporation of India (LIC) continues to be a pillar of support in the Centre’s disinvestment drive. The insurance major made a significant investment in two-thirds of public sector undertaking (PSU) IPOs launched in 2018, shows an analysis of shareholding data.

The state-owned insurance giant bought 28 per cent of the total shares on offer in Garden Reach Shipbuilders’ share sale. LIC acquired 7.3 per cent stake in the shipbuilding firm by investing nearly Rs1 billion in its Rs3.4-billion maiden offering. Similarly, LIC led from the front during the public issue of Hindustan Aeronautics, by mopping up 70 per cent of the shares offered during the IPO. 

LIC also bought 7 per cent stake in the defence company for Rs28.4 billion. Midhani (Mishra Dhatu) and Bharat Dynamics are other recent IPOs to have seen huge participation by LIC. Meanwhile, Rites and Ircon were two IPOs that managed to sail through without LIC participation.

Interestingly, not just LIC but other state-owned institutions such as New India Assurance, State Bank of India and Punjab National Bank, too, were seen picking up shares of PSU peers. Some of this could be on account of the routine stock market portfolio investment by these financial institutions.

While LIC playing white knight for PSU IPOs is not new, market participants said using the insurer as a bailout vehicle could have consequences in the future.

“LIC is doing a disservice to policyholders and capital markets by investing heavily in these issues. LIC is not a vehicle to be used by the government to meet its divestment targets. The government should ensure broad-based investor participation during disinvestment,” said Shriram Subramanian, founder and Managing Director (MD) of InGovern Research Services.

Most of the PSU IPOs this year are trading below their issue price. Market players said the post-listing performance is partly due to weakness in the secondary market. Moreover, investor sentiment towards PSUs has been weak, with the BSE PSU index declining 21 per cent this year and many stocks trading at multi-year low valuations.

The weakness could have hit LIC hard, as it has a huge shareholding in many PSUs.

Market players fear the insurance giant could be nudged to participate in future share sales by the government. The next few months could see huge issuances from PSUs or companies in which the government has holdings.

Some market participants argued it is too early criticise LIC’s investment decisions.

“Only time will tell if these investments investment decisions are wise. Historically, LIC has made good returns in the long term. The investment horizon for insurance companies is quite large,” said J N Gupta, co-founder and MD of SES.