LIC stake in housing arm to fall post GDR float

The Life Insurance Corporation of India's (LIC) stake in LIC Housing Finance Ltd (LICHFL) will fall as the housing finance arm's proposes to raise $50 million through Global Depository Receipts (GDR).

The state insurance mammoth, which currently holds 38.5 per cent in LICHFL, is likely to acquire IFCI's stake in LICHFL to shore up its stakeholding.

Following the GDR issue, "LIC's stake will get diluted in the housing finance subsidiary to 33 per cent," LICHFL director and chief executive A K Dasgupta told Business Standard.

The GDR issue, which is being lead managed by Kotak Mahindra Capital Company Ltd and Credit Lyonnais Securities Asia Ltd (CLSA), is expected to hit the market before September.

LIC officials had in an earlier interview indicated management interest to increase holding in LICHFL in order to retain control. LICHFL has been attracting a lot of interest from foreign institutional investors (FIIs) especially foreign mutual funds like Templeton and Merrill Lynch.

FII holding as on March 2004 has touched 20 per cent, and is likely to rise further with the proposed GDR.

LICHFL had explored tapping the international market last year in order to expand its equity base.

This fiscal (2004-05), with the housing finance company targeting a growth of 45 per cent in disbursement at Rs 6,200 crore. "We will need to raise funds to the tune of Rs 4,000-4,500 crore in addition to internal accruals of about Rs 2,000 crore," said Dasgupta.

Aside from GDR, LICHFL will also raise funds from the domestic money market.

LICHFL proposes to use LIC agents in a big way to sell home loans. With the housing finance market growing by leaps and bound, many agents have shown keen interest in hawking home loans especially with builders seeking funds and more and more complexes mushrooming across the country, said Dasgupta. "There is tremendous growth opportunities, but this should not be at the risk of compromising standards," he added.

Having disbursed Rs 4,104 crore loans in fiscal 2004, LICHFL has an eight per cent market share and ranks fourth in the industry close on the heels of State Bank of India, which has a nine per cent market. It is a close fight between Housing Development Finance Corporation and ICICI Bank for the number one slot.