10% ceiling in one company set to be removed, with riders.
The government is set to relax the equity exposure norms for Life Insurance Corporation (LIC), the largest institutional investor in the country, albeit with some riders. A finance ministry official said LIC would be allowed to increase its exposure to more than 10 per cent in corporate entities. At present, LIC can invest up to 10 per cent of capital employed by the investee company, or 10 per cent of the fund size in a corporate entity, whichever is lower. The capital employed includes share capital, free reserves and debentures or bonds.
The caveat, however, is the insurance behemoth would have to prune its book in illiquid stocks and unlisted investments, which constitute around Rs 5,000 crore, or two per cent of its total equity investment corpus.
| LIC’S MAJOR HOLDINGS | ||
| Shares | % stake | |
| Simplex Realty | 712,418 | 23.82 |
| Corporation Bank | 35,188,864 | 23.75 |
| TCM | 806,231 | 23.72 |
| Gloster | 615,348 | 23.52 |
| Standard Battery | 1,080,350 | 20.89 |
| Modella Woollens | 177,205 | 19.47 |
| Larsen & Toubro | 117,432,795 | 19.25 |
| MTNL | 118,515,213 | 18.81 |
| Cochin Malabar | 304,442 | 17.18 |
| Central Province | 161,091 | 17.14 |
| Empire Inds. | 963,435 | 16.06 |
| Thana Electric | 320,055 | 16.04 |
| Tata Global | 96,560,660 | 15.61 |
| Orissa Minerals | 92,500 | 15.42 |
| Non-promoter holding more than 15% Source: Capitaline Data compiled by BS Research Bureau (As on June 30, 2011) | ||
LIC’s total investment corpus stood at nearly Rs 11 lakh crore as on March 31, 2011, of which 20 per cent, or Rs 2.2 lakh crore, was in equity. During 2010-11, LIC invested Rs 1.96 lakh crore, of which Rs 43,000 crore was invested in equities. In the current financial year, the insurer has plans to invest a similar amount in equities.
To be sure, LIC currently has equity stakes more than 10 per cent in 37 listed companies. Three years ago, the insurance regulator, Irda, proposed bringing down LIC holdings to under 10 per cent in all listed companies. However, it did not follow up on the proposal, given the anaemic state of the markets at that time.
There are around 100 listed companies in which LIC currently holds five to 10 per cent stake. Irda (Insurance Regulatory and Development Authority) has already indicated it may relax the debt investment norms for LIC. The regulator is willing to allow it to invest up to 20 per cent in debt in a particular company. Currently, LIC’s debt exposure in a single company is capped at 10 per cent. However, this additional exposure may be allowed only for exchange-traded debt issues.
According to LIC sources, the equity investment portfolio of the insurer includes investments in more than 400 unlisted firms and the book value of such firms is estimated at Rs 1,500 crore.
The important unlisted companies where LIC has significant stakes include IL& FS, National Stock Exchange, Bombay Stock Exchange and UTI AMC. The directive, if it comes through, would mean LIC would have to come out of these investments over a period of time.
Besides, the ministry is of the opinion LIC's exposure in these companies (unlisted and illiquid stocks) is more than “desirable” and will have to be brought down to “comfortable” levels, not more than Rs 1,000 crore.
"Most of these investments, particularly the unlisted ones, are very old and have generated a significant value. So, it will not be difficult to come out of these investments. It should be brought down over a period of time, since most of it is policyholders’ money.
In the first phase, it should be brought down to Rs 1,000 crore of the total equity corpus,” the official added.
When contacted, a senior LIC official said the insurer had already initiated the process to prune illiquid stocks from its equity portfolio and unlock some of the longstanding unlisted investments. However, he added LIC was yet to receive any official intimation from the ministry in that regard.
"We have been demanding the relaxation in the equity exposure norms for a long time. Though we have been getting some indications the government is considering it, we are yet to get any official intimation,” the LIC official said. “We are aware of the ministry stance and we have been pruning our unlisted and illiquid exposure and trying to book some returns, whenever possible.”
In the current financial year, LIC knocked off more than 60 illiquid scrips and came out of certain unlisted investments as well, he said.
"Nearly 60 per cent of the stocks trading in BSE are illiquid, and since these involve policyholders' money, we have always been very selective about investing in stocks. All these have led to concentration of holdings in some companies,” he said.
