LIC plans investment exposure caps post Adani share rout: Report


NEW DELHI: In an effort to reduce risk concentration in the wake of criticism of its investments in Adani group firms, the Life Insurance Corp. of India (LIC) is going to set limitations on its debt and equity exposure to companies, according to two sources.

After the Adani group lost over $100 billion in valuation post scathing allegations by U.S.-based Hindenburg Research, state-run LIC was criticised for having over $4 billion exposure to companies from the group.

One of the sources with knowledge of the situation told Reuters that LIC, the largest domestic institutional investor in the nation 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 the same promoters.

According to the source, “LIC is seeking to have ‘boundary conditions’ on its investments that would limit its exposure to scrips.”

Since the conversations are confidential until the LIC’s board adopts the proposal, the sources did not want to be identified. Emails sent to the LIC and the federal finance ministry seeking comment did not immediately receive a response.

The caps would further reduce the insurer’s risk once they were authorised by the LIC board. Today, the insurer is only permitted to invest up to 10% of a company’s outstanding debt and 10% of its outstanding stock.

Additionally, insurers are prohibited by India’s Insurance Regulatory and Development Authority (IRDAI) from investing more than 15% of their money in the stock and debt of businesses that are controlled by a single corporation or promoter group.

According to the second source, the action is intended to enhance investment methods and shield LIC from criticism of its investment choices or exposure to organisations like the Adani group.

Before being presented to the board “soon,” the investment committee of the insurer would decide the size of the caps, according to the first source.

The insider stated, “It is now planning to develop sub-limits for such investments to maintain a check on its exposure.”

LIC has a debt exposure of 61.82 billion rupees and had invested 301.2 billion rupees in shares of Adani group companies.

“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.

Due to market volatility, this “may result in its investment being impacted and possibly result in the erosion of cash owed to policyholders.”