Fifth of HUL open offer shares tendered by LIC

The insurer by tendering its shares in open offer has missed potential gains of nearly Rs 500 crore

A fifth of the voluntary open offer in Hindustan Unilever Ltd (HUL) was tendered by state-owned insurer Life Insurance Corp of India (LIC).

According to a stock exchange filing, the insurer has sold about 67.32 million (3.11 per cent) shares of HUL at Rs 600 per share, cashing out over Rs 4,000 crore.

Unilever's Rs 29,200-crore voluntary open offer, India's largest ever, saw 320 million shares being tendered by investors against the offer size of 487 million.



Shares of HUL on Friday ended at Rs 663.30, down 3.4 per cent, but up over 10 per cent from its open offer price of Rs 600 per share. HUL shares had touched an record high of Rs 725 earlier this week.

The insurer by tendering its shares in the open offer has missed potential gains of nearly Rs 500 crore.

A senior LIC official said the life insurance company took investment decision with a long-term view. “At that juncture, we felt that the decision that we took with respect to the open offer in that company was a good investment decision,” the official said.

Interestingly, before HUL's offer commenced, LIC officials had maintained that they might not offer their holding in the company. During the open offer, the market was abuzz with speculation that LIC, along with other state-owned shareholders, were 'nudged' to part with their shares to stem the fall in the rupee.

 

LIC, which held 69 million shares (3.22 per cent) in HUL at the end of the March quarter, would now be left with only a minuscule holding, which is has substantial weightage in benchmark indices Sensex and Nifty.

Market experts said LIC might have taken the decision to sell shares in HUL as the stock was trading at nearly 38 times its estimated 2013-14 earnings. Most fast-moving consumer goods stocks trade at valuations of less than 30 times. Also, the insurer would have been able to sell such a large chunk of shareholding only through an open offer and the stock price would have crashed had it decided to sell it in the secondary market, experts pointed out.

The huge gains made by LIC by selling shares in HUL would come in handy for the insurer.

This year, LIC is planning to ramp up its efforts and invest more in agent training and marketing of new products under new product guidelines, apart from opening up offices in all Tier IV towns. LIC said it would open 1,700 offices by December.

Thomas Mathew, the former in-charge chairman of LIC, had told Business Standard recently in FY13, it made a 33 per cent growth in profit booking and booked Rs 21,000 crore profit from sale of equities and churning of the portfolio.

This year, LIC is looking to book Rs 25,000 crore as profit from churning of equity portfolio.