Insurance Regulatory and Development Authority (IRDA) is set to increase the equity exposure limit of Life Insurance Corporation of India (LIC) in a single company to 20% from current 10%.
At present, LIC can invest up to 10% of capital employed by the invested company or 10% of the fund size in a corporate entity, whichever is lower. The capital employed includes Share Capital, free Reserves and Debentures or Bonds.
However, there is a caveat, LIC will have to bring down its stake to 20% in companies where it holds more than 20% stake and it also have to pare down its stake in illiquid stocks and in unlisted investments which constitutes around Rs 5,000 crores or 2% of its total Equity Exposure.
This move assumes significance as now LIC will be able to invest in many blue chip companies in which it already holds more than 10% stake and it was not able to raise its stake in these companies due to existing cap such as TATA Steel, ITC, L&T, State Bank of India etc.
Besides this finance ministry is also pushing this issue at the earliest because of its pending disinvestment target. For the current financial year government is targeting Rs 30,000 crore from stake sales in public sector undertakings. In last financial year government could raise only Rs 14,000 crore by disinvestment as against the target of Rs 40,000 crore.
10% cap came into force in 2008, and since then LIC has been lobbing to relax this norm as it has already exhausted its limit in most of the blue chip companies.
Though, IRDA has not asked LIC to bring down its existing holdings in companies in which it holds more than 10% stake, but it has been asked to follow 10% cap in fresh investments.
As of 31 March, LIC’s total investment corpus stood at around Rs 13 lakh crore, and of which 20% or Rs 2.6 lakh crore is in equities. During 2011-12 LIC invested Rs 1.95 lakh crore, of which Rs 40,000 crore was invested in equities. In current financial year, LIC has plans to invest similar amount in equities.
The equity investment portfolio of LIC includes investments in around 400 unlisted companies and book value of such firms is estimated at around Rs 1,500 crores.
However, both finance ministry and Irda are of the opinion that LIC’s investments in illiquid and unlisted stocks is more than desirable limits and it should be brought down to comfortable level which could not be more than Rs 1,000 crores.
LIC has already initiated the process and during FY’12 it has knocked-off its stake in more than 60 illiquid stocks and exited from certain unlisted investments.
Posted on August 6, 2012 by Akanksha
No comments:
Post a Comment