CHAIRMAN LIC To Book Profits, LIC Seeks More Equity Play

11-Jun-2012

Insurer says 10% cap on stake in a single co too limiting

Life Insurance Corporation, the country’s largest investor, wants higher equity headroom to cash in on trading opportunities and book profits. In an interview with ET, LIC Chairman DK Mehrotra indicated the present exposure cap of 10% in a single stock restricts it from managing its investment book more actively. “We have been investors since 1956, and over the years we have been picking up stakes in companies. When Irda (the Insurance Regulatory & Development Authority) came up with its guidelines in 2008-09, we had very small headroom left,” he said. “Companies where we are reaching 10% or are beyond 10%, we cannot trade in them, not even for booking profit. If I trade, as per the regulation, I cannot go above 10% again. That’s preventing me from booking profits in good scrips,” Mehrotra said.

Irda, the insurance regulator, had said that rules could not be eased for just one company and there should be a level playing field in the industry. The rule says no insurer should own more than 10% in a company. Under the circumstances, if LIC offloads, say, 2% of its 12% stake in a firm, it cannot buy back the shares at a later date as the shareholding will be capped at 10%. LIC had recently stepped in to buy stakes in many stateowned lenders such as Punjab National Bank and Allahabad Bank. It holds over 10% in companies such as MTNL, HPCL and Tata Steel. LIC has suggested the regulator should allow it to grandfather investments made till 2008. The insurer has held on to some investments for 20-25 years. It has not been able to book profits in companies where other investors have made a killing.

Source : ET