Mumbai, 15 December
On the heels of the insurance regulator raising concern on the government move to allow Life Insurance Corporation ( LIC) to own up to 30 per cent in a firm, the securities market watchdog has expressed displeasure over the step.
The Securities and Exchange Board of India ( Sebi) feels the move could lead to violation of the country’s takeover laws.
According to the latest takeover rules, an entity acquiring 25 per cent or more in a firm has to make an open offer to buy an additional 26 per cent from public shareholders. That means, if LIC’s investment in a firm exceeds 25 per cent, it would have to buy another 26 per cent from non- promoter shareholders. If the open offer is fully subscribed, the insurer would end up holding as much as 51 per cent, breaching the cap of 30 per cent.
The thinking within Sebi is that LIC — the biggest domestic institutional investor — might get away without making an open offer, even if it purchases beyond the permissible limit.
“Though LIC has been allowed to buy up to 30 per cent, there is no clarity on what happens if open offer is triggered,” says a senior Sebi official on the condition of anonymity. It is, however, unclear whether Sebi has officially conveyed its displeasure to the finance ministry.
The step has also met with criticism from the Insurance Regulatory and Development Authority ( Irda), which thinks high exposure to a stock is “ imprudent”.
Earlier, LIC, too, was governed by the insurance Act, which says no insurer can invest more than 10 per cent of the fund or 10 per cent of the firm’s stake, whichever is lower.
An Irda official said the issue of takeover code violation as a result of the step was raised before the finance ministry. “ The ministry was apprised of the risks in letting LIC pick up to 30 per cent in a company. The possibility of an open offer trigger getting breached was also discussed.
However, the ministry went against our recommendations,” said a senior Irda official who didn’t want to be named.
A senior LIC official indicated the insurer might seek an open- offer exemption from Sebi in the event of open offer being triggered. “ We would not go and invest 30 per cent in all companies.
However, if we decide to raise our stake in a firm in the future, we will see how to go about it. Sebi had made some exceptions when we decided to invest 26 per cent in a public sector bank. I believe exceptions have been made and could be made in future in specific cases.” The market regulator had exempted LIC from making an open offer when its shareholding had breached the threshold limit in Corporation Bank.
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Regulator fears the insurer may get away without making an open offer
Company name LIC shareholding (%) Corporation Bank 25.49 TCM 23.72 Simplex Realty 22.92 Gloster 22.50 Standard Battery 20.89 Modella Woollens 19.47 MTNL 18.81 L& T 17.70 PTC India 15.75 Tata Steel 15.00
Source: Capitaline Compiled by BS Research Bureau HIGH STAKES Currently, LIC holds more than 20% in 5 firms Abolish 25% margin money in PSU share auction: Sebi told
The finance ministry has written to Sebi to do away with the 25 per cent margin money requirement for institutions bidding during the PSU stake sale through the auction route. The ministry, according to official sources, has also urged Sebi to extend the time for accepting bids by bourses to 5: 30 pm from 3: 30 pm during the auction process. These suggestions, they said, would help generate more demand during the stake sale process, as investors would not have to worry about providing funds upfront for making bids. “ We have written to Sebi to abolish margin money, at least for institutional investors. It will help generate better response for PSU shares,” the official said. PTI
