IDBI assets manager to merge with LIC MF, clear path to latter's mega IPO

IDBI Asset Management Company (AMC) is all set to merge its assets with Life Insurance Corporation of India (LIC) AMC. The talks are in the final stages and a decision will be taken ahead of the mega initial public offering (IPO) of LIC, said people in the know.

Following LIC’s acquisition of IDBI Bank, the former has become a sponsor of two AMCs, which is not allowed under the mutual fund regulations of the Securities and Exchange Board of India (Sebi). This issue may have acted as a roadblock for getting regulatory clearance for the LIC IPO.

“This merger of course is necessitated due to LIC’s holding in both LIC AMC and IDBI AMC, which breaches the cross-holding norms. IDBI AMC would likely be taken over by LIC AMC given the latter’s size and parentage,” said a senior official of IDBI AMC.

Following the merger, IDBI AMC, which currently has assets under management (AUM) of Rs 4,344 will cease to exist. LIC MF has AUM of Rs 18,040 crore.

Employees of IDBI AMC, on the other hand, are resisting the move fearing loss of employment.

In a letter to the LIC chairman, the employees of IDBI AMC have stated that they should be transferred to the new entity, along with the latter’s assets, or they be absorbed into IDBI Bank.

Sebi regulations don't allow a sponsor to hold over a 10 per cent stake in more than one AMC. LIC plans to buy out the assets of IDBI AMC ahead of IDBI Bank’s disinvestment, said the official.

“Also, there is a lot of interest in asset management business from players who have been keen to set up their AMC business. So, for AMC’s like IDBI AMC, open market sourcing would have given the exchequer higher valuation,” the senior official of IDBI AMC said.

Typically, whenever there is a merger, the acquirer, along with the assets, takes the existing employees of the acquired fund house.

IDBI MF is sponsored by IDBI Bank. However, the central government and LIC hold more than 90 per cent in the IDBI Bank. On the other hand, LIC MF is an associate company of LIC.

“While the employees are ready to co-operate in the implementation of policy decisions of the management, we request you to ensure and assure us that in the entire process, employment of the existing employees who are likely to be affected is properly protected. This is also in line with the government policy to prevent unemployment,” said the letter to the LIC Chairman.  

Currently, there are approximately 130 employees at the IDBI AMC. The employees of IDBI AMC have also stated that they will take legal action if assurances are not given on their job security.