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LIC Funds are wasted

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ONGC

NTPC

Tata Steel

NMDC

Geethanjali

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Rob Peter to pay Paul
What is unique, and also shocking, about recent disinvestment process is that many of them have led to money taken out from one government pocket and put into another one. The only difference being that the pocket that gets the money is the one that can be used to reduce the fiscal deficit as explained before. Let us again look at a few recent examples to determine how this happens, and how most of the stake sell-offs by the government is actually a huge sham.

In many cases, like disinvestment of Hindustan Copper, the state-owned Life Insurance Corporation (LIC) bailed out the government. When the government decided to sell 5.58% in the company in November 2012, there were no takers. Scared that the issue would bomb and derail the entire disinvestment process, LIC, along with State Bank of India, was forced to buy as much as 60-70% of the issue. In March 2011, LIC bailed out another high-profile PSU issue of ONGC.

Just a week before Hindustan Copper’s “offer for sale”, the government also relaxed norms for LIC’s investments in equities. The cap for the state-owned insurer’s exposure to a single stock was raised to 30% of the paid-up capital of a specific company. Thus, LIC could now invest larger sums in a single stock, which benefitted the disinvestment of Hindustan Copper. More importantly, the relaxation was despite the opposition from the insurance regulator, Insurance Regulatory & Development Authority (IRDA).

One can safely assume that in a bid to garner Rs 55,000 crore from disinvestment proceeds in 2013-14, the government will again use LIC’s coffers in a similar way. In fact, other cash-rich PSUs have been urged to keep aside huge sums to invest in PSU stocks, as and when they are available for sale. Reports claim that NMDC (which has set aside Rs 4,000 crore for this purpose) and Coal India (which has huge cash reserves) are on this list of PSUs, which are likely to invest in other PSU shares.

Admin · Guru

State-run cos get a fifth of LIC’s investment pie in last 3 years

Surabhi : New Delhi, Sat May 19 2012, 00:48 hrs

The Life Insurance Corporation of India may now be facing the heat for its high exposure to PSU stocks, but latest data reveals that a fifth of the investments made by the country's largest life insurance firm over the last three years have gone into public-sector firms.

The state-run insurance behemoth has purchased PSU equity shares and debentures amounting to Rs 1.05 lakh crore in the past three years, according to data submitted to Parliament. This includes purchase of equity in 51 state-owned firms between 2009 and 2012, amounting to

Rs 59,031.18 crore, and subscription to debentures in 42 public sector companies worth Rs 46,375 crore.

On the whole, LIC's total investments in the three-year period between 2009-10 and 2011-12 are estimated to be in the region of Rs 5.86 lakh crore. Of this, about Rs 1.5 lakh crore was invested in equity shares and the balance in debt products.

Official data reveals that its recent rescue operation of ONGC's share auction was not the only instance where the state run insurance behemoth stepped in to save state-run firms. While LIC has denied any last minute bailout of the ONGC share auction, the Parliamentary Standing Committee on finance recently called for an investigation into the issue.

Since 2009-10, LIC has regularly subscribed to all PSU share sales, including that of Coal India Ltd, SJVN Ltd, Shipping Corporation of India and ONGC Ltd. Its total exposure to shares belonging to ONGC amount to Rs 15,636.22 crore. Apart from disinvestment issues, LIC has also picked up shares in state-run firms including Damodar Valley Corporation and Food Corporation of India as well as nationalised banks such as Syndicate Bank and Bank of Maharashtra. With LIC being forced to increase stakes in state-owned banks as part of the government's fund infusion drive into banks in the January-March quarter of last fiscal, the public sector life insurer's stake in many banks is above the IRDA-mandated 10 per cent, and is actually closer to 15 per cent.

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Why is it LIC’s job to bail out Air India’s bond issue?

by FP Staff Apr 16, 2012

Life Insurance Corporation’s investment decisions have raised eyebrows in the last four months. Right after bailing out the government’s failed ONGC auction, LIC went ahead and bought shares of 14 public sector banks to help recapitalise them. And now it will have to invest in debt-laden Air India, too.

According to this Economic Times report, not only Life Insurance Corporation, but retirement funds of state-owned banks will have to buy into Air India’s Rs 7,400 crore bond issue. The non-convertible debentures have a 20-year maturity and carry a slightly higher coupon rate than comparable government securities. But the catch here is that the government wants to dictate the price at which the national carrier will sell its bonds, which will be well below the demand of private investors.

t sure seems like the government is hell bent on milking cash-rich LIC for its own cash craving. Reuters

After investing around 55 percent of its total permitted equity investment of Rs 40,000 crore in public-sector undertakings, is LIC once again being forced to invest on behalf of a cash-strapped government that cannot find funds for the capital requirements of Air India? If yes, it is an extremely troubling sign for the the 29 crore policyholders who have put their money in the organisation’s policies.

It sure seems like the government is hell bent on milking cash-rich LIC for its own cash craving. As a Firstpost article noted earlier, with the insurer busy buying shares in state-run entities at a time when they are struggling with a host of issues ranging from slowing credit growth and the rising threat of non-performing assets, there is clearly a conflict of interest over what is best for the company and what is best for the government’s stake sales.

And now the government is nudging LIC to do another ONGC with Air India. Even though Air India is in talks with the government for a higher spread of around 23-50 basis points above the government bond yield, the rates are too low to attract banks or institutions.

By making LIC purchase the bonds, the government is not allowing market forces to determine the price but is essentially indulging in price rigging.

In 2011-2012, the country’s insurance be moth invested Rs 1.5 lakh crore, of which Rs 90,000 crore were in debt investments, and around 50 percent of its equity investments were in stocks of state-run firms, which could seriously lower LIC’s returns.

But the question is if LIC begins to bail out each and every troubled PSU, who will eventually bail out India’s largest life insurer in the end when it needs capital? Obviously, the government. The game would then have come full circle.

Admin · Guru

Shareholders beware: Govt milking LIC

by FP Editors Apr 12, 2012

The government’s assault on Life Insurance Corporation (LIC) continues unabated.

According to a report in The Economic Times, more than 50 percent of LIC’s equity investments in the past financial year have been in stocks of state-run companies, which could potentially lower its returns given the various ways the government hobbles the operations of public-sector companies.

Reuters

The report says the state-run insurer invested around Rs 22,000 crore, or 55 percent of its total permitted equity investment of Rs 40,000 crore, in public-sector undertakings (PSUs).

Given that in general, public-sector undertakings operate under several restrictions (in the name of ‘social interest’) imposed by the government, which lower their profits, it’s hard to see why the state-run insurer thought it fit to invest more in public-sector companies over private-sector ones. Unless of course, it was ordered to do so.

Who benefits from these investments, then? The government of course.

LIC is not publicly listed, but it has 29 crore insurance policy holders; however, time and again, it seems to put the needs of its only shareholder — the government, which fully owns LIC — over everything else.

And the top priority of the government seems to be to milk as much as it can from LIC to satisfy its own cash cravings. The government should be writing a book on “25 ways to milk profitable undertakings”. It would be a best-seller, especially among similar-minded governments around the world.

Certainly, it has been trying at least more than one way to squeeze out money from LIC, which, in turn, keeps getting rapped by regulators — and market watchers — about its lax prudent investment norms.

Only recently, LIC fell into trouble with the Insurance Regulatory Development Authority after it breached its single-company investment limit. According to insurance regulations, an insurance company cannot purchase more than 10 percent in any company. In the previous quarter, LIC pumped in close to Rs 8,000 crore in several public-sector banks, breaching that limit across banks, this Firstpostreport said.

More importantly, questions were also raised about why LIC thought now was the perfect time to invest in banks, which are struggling with a host of issues ranging from slowing credit growth and the rising threat of non-performing assets.

The insurance company has also come under the regulator’s scanner for the composition of its board, which includes the heads of some state-owned financial institutions, as well as for the composition of its investment committee, which includes a government official, according to another Economic Times report.

Given that the insurer is busy hoovering up shares in state-run entities, there is clearly a conflict of interest over what is best for the company and what is best for the government’s stake sales.

And, of course, everyone knows about the ONGC auction fiasco, where LIC stepped in at the last minute and snapped up 4.41 percent stake in the oil giant at a higher-than-market-price of Rs 303 per share.

Of course, LIC is not the only state-run entity that is being abused. In a bid to generate cash, the government has been forcing some state-run companies like ONGC to dole out dividends (obviously, the chief beneficiary is the main promoter – the government). Plus, the government has been thinking of ordering cash-rich PSUs to buy the government’s stake in other PSUs to rake in more moolah for government.

But looting PSUs is not the only job of the government; it also enjoys playing the whimsical high lord in many cases.

In at least one company, minority shareholders are fighting back. The repeated government interference in the pricing of coal frustrated one minority shareholder — UK-based The Children’s Investment Fund (TCI) — of Coal India so much that it initiated legal action against the government.

All this bodes ill for this year’s disinvestment programme. If the government interferes remorselessly in the operations of state-run entities, why will investors be inclined to buy shares of PSUs? Worse-case scenario, it will force LIC to mop up the shares.

A cash-desperate government is shooting itself in the foot by engaging in such financial shenanigans. Potential PSU shareholders, beware.

New Indian-Chennai News + more

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State-run cos get a fifth of LIC’s investment pie in last 3 years

Why is it LIC’s job to bail out Air India’s bond issue?

Shareholders beware: Govt milking LIC