LIC head-on exposure to Adani Group companies: “Policyholders have nothing to worry about.”

According to chairman M.R. Kumar, the LIC management will shortly meet with the senior executives of the Adani Group to clarify the situation the diverse company is now experiencing.

After U.S.-based short-seller Hindenburg Research made a long list of accusations against the Gautam Adani-led group, including that its companies manage and manipulate share prices, run offshore shell companies for round-tripping, and lack corporate governance practices, the opposition parties and investors criticized LIC’s investment in the stock of Adani group firms.

“Although our investment team has previously asked the Adanis for answers, our senior management has been too busy preparing the results to reach out to them. We’ll call them soon to arrange a meeting so we can clarify. Understanding the state of the market and the business is important to us “At the presentation of the results on Thursday, the chairman informed reporters.

Mr. Kumar continued, “We’ll be calling them in anytime soon to know how are they managing the whole problem.” However, Mr. Kumar steadfastly declined to provide a schedule for the meeting between LIC and Adani group representatives.

With investments totaling 36,474.78 crores as of January 27, or 4.23% of the total public holding in those firms, LIC, the largest institutional investor in the country, is the second largest stakeholder in the majority of the listed Adani group companies. However, this barely represents 0.97 percent of the 44.76 lakh crores worth of financial assets that LIC oversees. The investment, as of January 27, had a value of around 56,000 crores, according to LIC’s announcement on January 30. The value of these shares has since dropped considerably more, reaching roughly $100 billion, or well over 60% of their January 24 market value.

The chairman declared clearly, “Our investments are still lucrative, and we haven’t made any changes to the vast majority of our equity or debt holdings. 4.23% of the total publicly traded holdings of the companies are our equity interests in the group.However, this only represents 0.97 percent of the 44.76 lakh crore that we have invested in the market as a whole. He said that although the equity cap of 15% set by India’s insurance regulating and development authority is normally applied, “we have exceptional cases were we control more than 30% in specific organisations.” 

“When they are in the green, why should we be making provisions? Our interests in several of the group firms (ACC and Ambuja Cements) dates back more than 20 years “added he. On January 30, LIC made the following public announcement: “As of now, we have a total stake of Rs 36,474.78 crore in the Adani Group firms under equity and debt. The amount as of December 31, 2022, was Rs 35,917.31 crore.

These shares of the group companies were bought for a total of Rs 30,127 crore over a number of years, and as of January 27, 2023, the market value of those shares was Rs 56,142 crore. The LIC is exposed to all 10 of the listed Adani group companies. But it withheld details particular to each company. Even after the Hindenburg report was released, LIC persisted in being an anchor investor, investing $300 billion to buy 9,15,748 shares in Adani Enterprises’ 20,000 billion follow-on public offer.

According to Mr. Kumar, the market asset under management, which is valued at 44.75 lakh crores, only has a book value of 6.87 lakh crore, and its exposure to the Adani group firms is just 4.23% of that value. The value of the group companies’ stocks has decreased by more than $100 billion, or roughly 60%, from its January 24 value since the publication of the Hindenburg report on January 24, which was three days before the start of the group’s flagship Adani Enterprises‘ 20,000-crore follow-on public offer (FPO).

LIC’s expanding conglomerate investments

Despite these reservations, the LIC, which is under the jurisdiction of the Union government, has made large investments in the Adani Group. Over 98% of all insurance industry investments in the Adani Group are made by the insurer.

Since September 2020, the value of LIC’s interests in Adani Group firms is said to have increased tenfold. Equity holdings managed by LIC increased dramatically from roughly Rs 7,300 crore in 2020 to around Rs 72,200 crore as of Tuesday.”Assets under management” refers to the entire market value of the investments that a corporation handles. Despite new fraud allegations against the Adani Group, the LIC has not changed its course. This week, it made nearly Rs 300 crore in investments in Adani Enterprises, the group’s main company. 

The Adani Group’s companies saw a market drop this week as a result of allegations in the Hindenburg probe, raising questions about the LIC’s sizable exposure to the conglomerate. Seven listed Adani Group companies have lost a combined $48 billion in share value as a result of the report’s publication.

The LIC owns sizable stakes in companies owned by the Adani Group. 4.23 percent of the shares of Adani Enterprises are owned by the insurance. Adani Green, Adani Total Gas, Adani Transmissions, and Adani Ports are other investments held by the LIC, with respective shares of 9.14%, 5.96%, 3.65%, and 1.28%. The selling of the LIC’s shares in these five Adani Group companies is said to have resulted in losses for the insurer of more than Rs 16,500 crore in the two market sessions that followed the report’s release.

Investor implications

The money that LIC gets from its investors is invested in assets like equities. Investors receive a return on their investment from the profits these assets create. The location of LIC’s investments is a key factor in determining a person’s profits since an investor’s investment in LIC’s products is somewhat related to the stock market.

The size and breadth of LIC also make it a significant player in the Indian middle class, which commonly turns to the company for necessities like post-retirement savings. With a staggering 250 million investors, LIC manages funds that are as sizable as the whole mutual fund industry. Bad investment decisions by LIC have long been a problem, and the company has consistently given investors poor returns. But this is the first time that the investments made by a public sector company in a private company have come under scrutiny.

The LIC’s investments in Adani have sparked political controversy due to the magnitude of the pool of policyholders it serves. The significant Adani Group exposure of LIC, according to Congress leader Jairam Ramesh, has put those who have invested their assets in LIC in danger of losing their savings.

“The large exposure of financial institutions like the Life Insurance Company of India and the State Bank of India to the Adani Group has consequences for financial stability and for the crores of Indians whose money are stewarded by these pillars of the financial system,” he claimed.

edited and proofread by nikita sharma