LIC spurns UTI-I offer to buy L&T, UTI Bank stake

The Life Insurance Corporation of India (LIC) has turned down UTI-I's offer to buy its stake in Larsen & Toubro (L&T) and UTI Bank.

A senior source said the corporation has declined the offer as the same would be a dead investment.

Following LIC's refusal, UTI-I is in a fix as it cannot offload the stake in the open market. Further, no other bank or institution is willing to buy the stake as it cannot trade in the securities as these stakes are considered 'sensitive' investments.

UTI I's holding in these stocks is considered sensitive as L&T is into defence manufacturing sector. Likewise, the government wishes to ensure that UTI Bank stake is not taken up by foreign banks such as HSBC.

In the case of ITC, while BAT would be willing to pay a premium for the stake, the government does not wish to allow BAT to acquire the same, said industry sources.

LIC was selected as the preferred buyer of government's strategic holding in 'sensitive scrips' which today are part of UTI-I's investment portfolio.

With the specified undertaking of the Unit Trust of India (UTI-I) being wound up, the biggest decision the government had to take was how to dispose its stake in UTI Bank, L&T and ITC.

UTI-I made LIC an offer to pick up 10 per cent in UTI Bank and 10.14 per cent in L&T. It has not yet offered the sale of the 11.18 per cent stake in ITC to any institution.

S B Mathur had earlier told Business Standard that LIC would be given the first choice in picking up UTI-I's stake. In the case of UTI Bank, it had been decided that 10 per cent would be offloaded to LIC and the balance to other institutions and banks.

The sale of government holding to LIC and other institutions as well as banks comes with a key rider, that the stakes cannot subsequently be sold or traded.

"This would fetch a very low return on investment of hardly 1 per cent and could even result in a negative impact on the amount of distributional surplus with LIC," said the source.

If LIC was willing to pick up the 10 per cent stake of UTI-I in the private bank, its stake would have just about touched 20 per cent. "Yet LIC would have continued to be just a strategic investor," said a senior official.