The Life Insurance Corp. of India (LIC) is planning to impose caps on its debt and equity exposure to companies, two sources said, in a bid to lower concentration of risk following criticism of its investment in Adani group companies.
After the Adani group lost over $100 billion in valuation post scathing allegations by U.S.-based Hindenburg Research, state-run LIC was criticized for having over $4 billion exposure to companies from the group.
LIC, the country’s largest domestic institutional investor with assets under management of about $539 billion, is planning to cap its debt and equity exposure in individual firms, group companies and companies that are backed by same promoters, one of the sources, with knowledge of the matter, told Reuters.
“LIC is looking to have ‘boundary conditions’ on its investments that would limit its exposure to scrips,” said the source.
The sources did not want to be named as the discussions are private until the LIC’s board approves the plan. The LIC and federal finance ministry did not immediately reply to e-mails seeking comment.
The caps, once approved by the LIC board, would further limit the insurer’s exposure. Currently, the insurer cannot invest more than 10% of outstanding equity in a company and 10% of the outstanding debt.
The Insurance Regulatory and Development Authority of India (IRDAI) also bars insurers from having more than 15% of their investment funds in equity and debt of companies owned by one corporate or a promoter group.
The move is aimed at strengthening investment strategies, and fence LIC from public criticism of its investment decisions or exposure to entities like the Adani group, the second source said.
The quantum of the caps would be decided by the insurer’s investment committee before it is taken to the board “soon,” the first source said.
“It is now planning to come up with sub-limits for such investments to keep a check on its exposure,” the source said.
LIC had invested 301.2 billion rupees in shares of Adani group companies, and has a debt exposure of 61.82 billion rupees.
“The (current) overall limits imposed by IRDAI for investment in entities owned by a single group could mean LIC can invest large amounts in group companies as it has a sizeable investible fund,” said Bahroze Kamdin, a partner at Delloitte India.
“This could lead to its investment getting impacted due to volatility in the market, and likely erosion of funds owed to policyholders.”
Reuters