LIC turns out to be the government's ATM, buys record amount of bonds and PSU stocks
The state-run insurer's purchase of government bonds rose 20%, and it bought nearly 40% of the shares sold via offer for sale (OFS) in four out of total seven PSUissues, said people familiar with the investments.
LIC's bailout of PSU issues dipped this year as some blue chip stocks, such as NTPC, Oil IndiaBSE -0.38 %and NMDC, found other investors. But share sales of most others, including SAILBSE 0.56 % and Hindustan Copper, had to be bailed out by LIC. The insurer mobilises nearly Rs 450 crore a day, which is invested in bonds and equity.
LIC remains the single-largest buyer of government bonds because of its control over more than three-fourths of the life insurance industry and the mandatory 50% investment it has to make in government securities. This, though considered safe, has also drawn criticism that it is a form of financial repression and reduces the returns for policyholders.
Of the Rs 4.67 lakh crore raised by the government through securities, LIC provided over Rs 1.10 lakh crore, or 21.4% of the total figure. There is more demand for long-term papers than availability.
"As a corporation, LIC is like a trustee, and it should not be a party to any wrongdoing so that the trust of policyholders is not shaken," said Ashwin Parekh, national director, Ernst & Young.
LIC invests in government securities with a view to holding them till maturity, and mark-to-market losses in the interim are not good. Parekh said it would be a good practice to evaluate returns on redemption each time it happens and compare it with benchmark government bond rates. "Any shortfall in the return should be compensated by the government," he suggested.
Foreign institutional investors and domestic investors, such as private insurers, mutual funds and banks, showed interest in the government's disinvestment plan, contributing 16% of the total disinvestment figure of Rs 23,900 crore.
This is the highest amount raised by the government in a fiscal year via stake sales in public sector units.
LIC invested Rs 236 crore in Nalco (35% of the OFS size), Rs 142 crore in RCF (45%), Rs 608 crore in Hindustan CopperBSE 14.72 % (44%), Rs 923 crore in NTPCBSE 1.02 % (5%), Rs 1,069 crore in SAIL (71%) and Rs 282 crore in NMDCBSE -1.89 % (4.7%).
At Rs 11,500 crore, NTPC's OFS was the biggest, followed by NMDC's Rs 5,973-crore issue.
LIC had contributed 81% to the government's Rs 14,000-crore mop-up from share sales in 2011-12 by investing Rs 11,400 crore in ONGCBSE -1.08 %.
Of the Rs 4.67 lakh crore raised by the government through securities, LIC provided over Rs 1.10 lakh crore, or 21.4% of the total figure.
Life Insurance Corporation was the most dependable automated teller machine for the government in the past year, buying record amounts of bonds and stocks of public-sector firms.
The state-run insurer's purchase of government bonds rose 20%, and it bought nearly 40% of the shares sold via offer for sale (OFS) in four out of total seven PSUissues, said people familiar with the investments.
LIC's bailout of PSU issues dipped this year as some blue chip stocks, such as NTPC, Oil IndiaBSE -0.38 %and NMDC, found other investors. But share sales of most others, including SAILBSE 0.56 % and Hindustan Copper, had to be bailed out by LIC. The insurer mobilises nearly Rs 450 crore a day, which is invested in bonds and equity.
LIC remains the single-largest buyer of government bonds because of its control over more than three-fourths of the life insurance industry and the mandatory 50% investment it has to make in government securities. This, though considered safe, has also drawn criticism that it is a form of financial repression and reduces the returns for policyholders.
Of the Rs 4.67 lakh crore raised by the government through securities, LIC provided over Rs 1.10 lakh crore, or 21.4% of the total figure. There is more demand for long-term papers than availability.
"As a corporation, LIC is like a trustee, and it should not be a party to any wrongdoing so that the trust of policyholders is not shaken," said Ashwin Parekh, national director, Ernst & Young.
LIC invests in government securities with a view to holding them till maturity, and mark-to-market losses in the interim are not good. Parekh said it would be a good practice to evaluate returns on redemption each time it happens and compare it with benchmark government bond rates. "Any shortfall in the return should be compensated by the government," he suggested.
Foreign institutional investors and domestic investors, such as private insurers, mutual funds and banks, showed interest in the government's disinvestment plan, contributing 16% of the total disinvestment figure of Rs 23,900 crore.
This is the highest amount raised by the government in a fiscal year via stake sales in public sector units.
LIC invested Rs 236 crore in Nalco (35% of the OFS size), Rs 142 crore in RCF (45%), Rs 608 crore in Hindustan CopperBSE 14.72 % (44%), Rs 923 crore in NTPCBSE 1.02 % (5%), Rs 1,069 crore in SAIL (71%) and Rs 282 crore in NMDCBSE -1.89 % (4.7%).
At Rs 11,500 crore, NTPC's OFS was the biggest, followed by NMDC's Rs 5,973-crore issue.
LIC had contributed 81% to the government's Rs 14,000-crore mop-up from share sales in 2011-12 by investing Rs 11,400 crore in ONGCBSE -1.08 %.
Source : SHILPY SINHA,ET BUREAU
