No urgency for LIC to cut stake in companies

The new investment norms capping an insurance company’s exposure to a single company at 10 per cent is unlikely to affect Life Insurance Corporation of India’s (LIC) holding in 39 listed companies where it breaches the ceiling.

In fact, a senior official at the Insurance Regulatory & Development Authority (Irda) said that the the regulator will hold consultations with the country’s largest insurer to ensure that the new norms do not destabilise the system. Market participants feared that a stake sale by the insurer may affect the share prices of the concerned companies. On its part, LIC executives said it will be tough to find buyers for such a large number of shares.
 

HOW THEY STACK UP
Company	Stake (%)

Company

Stake (%)

Corpn Bank26.32Cipla11.32 M&M17.49Maruti Suzuki10.93 MTNL17.36Tata Tea10.92 Larsen & Toubro16.78Ambuja Cements10.90 ACC15.93Grasim Ind10.88 HPCL15.76Tata Motors10.83 Ranbaxy Labs15.01Siemens10.79 Punjab Tractors13.31Oriental Bank10.43 Dr Reddys Labs12.25Tata Steel10.28 Ashok Leyland11.78Torrent Power10.24 Reliance Infra11.46Merck10.12 Source: BSRB; LIC’s holding at the end of June 2008

“The idea is to avoid concentration of risk.... There should not be any practical difficulties. If LIC is facing any implementation difficulties, we will take it separately with them. There is no urgency for LIC to lower their stakes to 10 per cent in the listed companies as they were done in line with the earlier investment norms,” a senior Irda official said.

Though the new Irda investment guidelines are effective from Friday, they would not be applicable to the earlier investments by the public sector behemoth.

“We are examining the new guidelines and discussing them internally. No where do the new norms state that LIC has to bring down the existing stakes. If any clarification is required, we may take it up with Irda,” said a senior LIC executive.

LIC will, however, encounter difficulties in extending loans to companies as the new norms have capped debt flows at 10 per cent of the paid-up capital, free reserves and debentures and bonds. “We will now have to find newer companies which enjoy higher ratings as stated by Irda,” the executive said.