LIC to Buy 10 Crore Stake


LIC to Buy Rs.10 Crore Stake
Bangalore: Life Insurance Corporation is ready to roll out nearly 10, 000 crore to buy a part of shares owned by the Special Undertaking of Unit Trust of India (SUUTI). According to people familiar with development, the country's largest investor is ready to jump on the opportunity. SUUTI holds more than 1 percent stake in 19 firms as of September 30, according to data provided by Business Standard Research Bureau. The holding was worth 33, 000 crore at Thursday closing. ITC hold 11.54 percent, Larsen & Toubro has 8.27 percent and Axis bank has 23.58 percent value in that bulk value. A senior LIC official, said, "We will be interested, as these are very good investment options. Funds won't be a problem as we will be investing more than Rs 15,000 crore in equities in the last quarter." To buy a huge chunk of blue-chips at minimum cost makes sense for the insurer. The share prices will soar up and make acquisitions expensive if it tries to accumulate quantities of shares in the open market. According to analysts, this can turn out to be a preferred solution for the management as well. Larsen & Toubro and ITC are the two companies of the lot which does not have any identifiable promoters. Dilution by SUUTI can put the managements of these companies at risk if strategic investors picked up these shares. But the status quo will not be affected if a financial investor like LIC comes in. An insurance company is only allowed to invest 10 percent stake in Investee Company, according to rules by insurance sector. The official said, "We have to take permission from the regulator to increase our holdings to more than 10 per cent. But, that won't be a problem as earlier too the regulator allowed it under special circumstances." LIC is the single major shareholder in L&T with 19.15 per cent and the second major shareholder in ITC with 12.5 per cent. It owns 9.8 percent in Axis Bank. The life insurance can get hold of up to 24.99 percent in these companies, despite generating open offer obligations, with recent changes in takeover rules. LIC can buy 5.85 percent more in L&T and 12.48 percent more in ITC. In Axis Bank it can buy the whole of 23.57 percent owned by SUUTI through an inter-se transfer, according a BS Research Bureau analysis. The government had intended to lift up 40, 000 crore through the disinvestment programme. In the existing financial year LIC has invested Rs 25,000 crore in equities, way short of its target of 40,000 crore for the year. LIC's total investment stood around 11 lakh crore as on March 31, 2011, of which 20 percent, or Rs 2.2 lakh crore, was in equity. During 2010-11, LIC invested Rs 1.96 lakh crore, of which Rs 43,000 crore was invested in equities. The insurer has plans to invest a similar amount in equities, in the current financial year.