The Life Insurance Corporation of India (LIC) has decided to shelve the plans of floating a merchant banking arm with its strategic partner -- Corporation Bank.
Pointing to the non-existence of a market for public issues, LIC acting chairman and managing director, A Ramamurthy said: "We are going slow as conditions in the capital market are not conducive".
At the time of announcing the strategic alliance last year, LIC and Corporation Bank had chalked out plans of floating two new entities -- an information technology outfit and a merchant banking arm. LIC had also proposed to take 20 per cent stake in CorpBank Securities.
This will enable the financial institution to invest in the call market and bid for government securities.
Ramamurthy told Business Standard that the pricing will be finalised by this week. With LIC taking a stake in the primary dealership arm, the share capital of the company will increase from Rs 100 crore to Rs 125 crore. The pricing of the 20 per cent stake is currently under discussions between the two partners.
LIC has decided to invest up to Rs 50 crore in the primary dealership arm of the bank, which would include the premium for its 20 per cent stake. Independent valuation reports have been undertaken by LIC and Corporation Bank. UTI Securities undertook the valuation for LIC, while Deloitte, Haskins and Sells did it for Corporation Bank.
Technically LIC can invest up to 30 per cent, but has decided to cap the investment at 20 per cent so as to avoid having to approach the Insurance Regulatory and Development Authority (IRDA) for an exemption from the investment norms. As per the IRDA norms, insurance companies can invest in entities to a limit of 20 per cent.
