LIC to reduce exposure in Tata Sons

India’s largest insurer, government-owned Life Insurance Corporation (LIC), will stop fresh investments in Tata Sons, alongwith all other insurance companies, as the Tata group holding company turns private. This is because the Insurance Regulatory and Development Authority of India (Irdai) bars insurance companies from investing in any private entity. 
 

According to a source, the life insurance giant is in talks with Irdai to give it some time for reducing exposure in Tata Sons. LIC is the biggest investor in Tata Sons’ debt (non-convertible debentures (NCDs)), and as of March 2017, had total NCDs outstanding worth Rs 210 billion with “sizeable” exposure from LIC.

In its talks with Irdai, a source said Tata Sons had cited an Irdai ruling in January 2015, when it had directed insurance companies to treat their exposure to IDFC as exposure to the banking sector, instead of the infrastructure sector. But, Irdai gave insurance companies a two-year window to reduce their exposure in IDFC’s bonds. This was soon after IDFC received its banking licence and the banking entity was listed separately. 

A Tata Sons spokesperson declined to comment but insiders said the group is in talks with other lenders on alternative fundraising. 

 

In September last year, Tata Sons had sought shareholder approval to turn into a private company, which according to the Mistry family — its minority shareholder — was detrimental to their interests. They had moved a petition in the National Corporate Law Tribunal (NCLT) against it. 

In November, the NCLT’s Mumbai bench had ruled that Tata Sons can file but not press a plea to become a private company till the next hearing on January 16.
 

The restriction on LIC comes at a time when Tata Sons’ fund requirements in the coming months will be huge. It would have to raise funds to retain its 32 per cent stake in Tata Steel, scheduled for the current quarter. Beside making an additional  Rs 300-billion investment in Tata Teleservices by March this year. Tata Teleservices would use the proceeds to repay own debt.

An LIC official said Tata Sons was always a good investment because of its good credit rating. For the year ended March 2017, Tata Sons had cash reserve of Rs 116 billion. Apart from holdings in other Tata-listed entities, Tata Sons derives financial muscle from its 73.5 per cent stake worth Rs 3.7 trillion in Tata Consultancy Services, which gives it enough financial space to raise funds from other lenders. The company made profit of Rs 8.24 billion on revenue of Rs 102 billion for FY17. 

In FY17, Tata Sons’ internal accruals have been lower than in FY16, on account of provision for diminution in value of investments and exceptional items  worth Rs 67.7 billion. Primarily to pay damages to NTT DoCoMo to buy back the latter’s 26.5 per cent stake in Tata Teleservices. 

The amount of damages payable to NTT DoCoMo was deposited by Tata Sons with the Delhi high court in July 2016. While this led to an increase in net debt as of March 31, 2017, the financial profile of the company remains healthy (see chart), analysts said.