Government likely to cap LIC exposure in a listed company at 25%

MUMBAI: The government may cap LIC’s investment exposure in a listed company to 25% of its equity after the insurance regulator raised concerns that the proposed 30% limit would increase the risk for policy holders besides triggering the takeover code.

“The matter is being discussed with Irda and we expect to find the solution shortly that will address the concerns of both the parties (Irda & LIC),’’ financial services secretary Rajiv Takru told ET.

“In any case, the government doesn’t encourage any risky investments on part of LIC.” Currently, insurance companies can invest up to 12-15% in a company, depending upon their asset size. If the government makes an upward revision to 25%, it would facilitate easy fund-raising by state-run companies.

Insurance regulator Irda, however, had raised objection to granting an exemption to LIC as it discriminates its private sector peers, whose stock holding is capped lower. Moreover, it is not in favour of doubling LIC’s current investment limit as it raises the firm’s risk profile.

Life Insurance Corporation of India, or LIC, which manages assets over Rs 13 lakh crore, had told the government that the current investment limit restrains it from investing in good companies.

A senior LIC official said the LIC Act allows it to invest up to 30% in a company, but it mostly keeps its investment below that limit. The Insurance Regulatory and Development Authority, however, has a different take on this provision. It believes that after its creation in 1999, the earlier sole powers of the government over LIC are extinguished fully. It is learnt that the finance ministry is in consultation with the law ministry with regard to this issue.

The country’s largest local investor has the highest exposure to Corporation Bank, in which it holds 24.69% stake, a tad below the open offer threshold limit, besides Larsen & Toubro and Tata Steel, where it holds about 17% and 15%, respectively.

“We had hiked our stakes in companies with the government’s permission,” the LIC official said. The regulator also raised the applicability of takeover norms which say that whenever a holding crosses 25%, the holder has to offer to buy up to 26% from minority shareholders. “We are examining the takeover issue and nothing will be done which will violate the law,” Takru said.

In FY13, the insurer bought stocks worth Rs 17,630.39 crore, including shares of staterun units in which the government divested its holdings. Takru, who is also on the board of LIC, said the insurer will have to detail out the rationale if it decides to take a higher exposure in any company. He said its current policy allows it to invest in sectors and companies with the highest rating.