Life Insurance

Can ITC stake sale by SUUTI be termed divestment?

Sidhartha Shukla

Like the UPA before, Narendra Modi-led NDA has not been shy in using LIC to achieve its disinvestment goals.

In early trade Tuesday, the government divested 2 percent of its stake held in ITC held through the Specified Undertaking of the Unit Trust of India (SUUTI).

The surprise divestment had only one buyer, the Life Insurance Corporation of India, which picked up the entire 2 percent stake in ITC at a price of Rs 275.85 per share.

The stake sale came at an opportune time, when the stock price of ITC was close to near its 52-week high, and helped the government raise around Rs 6,700 crore.

This brought the government closer to achieving its FY17 revised divestment target of Rs 45,500 crore.

For FY17, the total divestment made via minority stake sale and strategic stake sale now stands close to Rs 37,700 crore.

The use of LIC as a state-owned investment fund calls into question whether the stake sale can truly be termed a divestment exercise.

Speaking to Moneycontrol, JN Gupta, Co-founder and MD of proxy advisory firm Stakeholders Empowerment Services (SES) said that in the real sense, “one arm of the government is the seller and other is the buyer, so at best it a resource [mobilisation] exercise by the government.”

“The money that has been put in [by LIC to buy 2 percent in ITC] does not belong to the government but to the policy holders,” he said.

In the past too, SES has been critical of the government’s divestment proceedings and raised questions on LIC’s involvement in the procedure.

Last year, when the LIC bought the government’s stake in NBFC, allowing the latter to bring down its holdings in the company to the maximum allowed limit by SEBI, SES wrote: “We are of the view that the present divestment does not meet the spirit behind minimum public shareholding (MPS) norms.”

“As per SEBI ICDR definition of Promoter, LIC is to be included as promoter, therefore effectively divestment has not really achieved compliance,” the firm added.

Is LIC flouting IRDAI norms?

With Tuesday’s 2 percent purchase in ITC, LIC may also be violating maximum holding norms laid down by IRDAI.

As of the third quarter of FY17, LIC held 14.32 percent in ITC and with the additional purchase made yesterday, it now holds 16.32 percent.

In 2013, IRDA had prescribed the maximum equity holding limit for an insurer at 15 percent and declined a request to make an exception for LIC.

The cap is to avoid the concentration of risk due to one scrip on the overall investment portfolio.

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