LIC Plans To Cap Its Debt And Equity Exposure After Stock Rout Of Adani Firms.
LIC intends to establish caps on the amount of debt and equity it is exposed to as received criticism for investing in Adani Group companies, and that’s why the step is taken to reduce risk concentration.
LIC Plans To Cap Its Debt And Equity Exposure After Stock Rout Of Adani Firms.
Life Insurance Company (LIC) intends to establish caps on the amount of debt and equity it is exposed to, according to a report. The insurance company received criticism for investing in Adani Group companies, and that’s why the step is taken to reduce risk concentration.
This comes after the most reputable insurance company in India, LIC, came under fire for having about 1% of its $508 billion in assets under management invested in businesses owned by the problematic Adani group.
Investors have been obliged to reduce their holdings in group firms because of the decline in the value of Adani shares that was brought on by charges of fraud from the US-based short seller Hindenburg Research in January.
Before the publication of Hindenburg’s report in January, LIC had more than $9.8 billion invested in Adani equities. Early in March, it dropped to $3.6 billion, according to a source.
According to a Reuters article that quoted sources, the insurer plans to cap its exposure to debt and stock in group companies, Individual companies, and companies that are supported by the same promoters.
According to the second source, the action is intended to enhance investment strategies and shield LIC from criticism of its investment choices or exposure to companies like the Adani group. Before being presented to the board “soon,” the investment committee of the insurance will decide the size of the caps, according to the first source.
The insider stated that it is now planning to develop sub-limits for such investments to maintain a check on its exposure.
According to a person who spoke to Reuters, the insurer is seeking to impose “border limitations” on its investments to reduce its exposure to the scrips.
Also, the insurer is not allowed to contribute more than 10% of a company’s Outstanding Debt and 10% of its Outstanding Stock. Now, the insurer’s risks would be further Restricted if the caps were accepted by the LIC Board.
The Insurance Regulatory and Development Authority of India (IRDAI) is another entity that prohibits insurers from investing more than 15% of their investment money in the Equity and debt of businesses that are owned by a single corporation or promoter group.
The investment committee of LIC will deliberate on the quantum before it was presented to the Board, the person told Reuters.
According to Bahroze Kamdin, a partner at Deloitte India, the limits as they stand may lead to LIC’s investment getting impacted due to volatility in the market, and likely erosion of monies owed to policyholders.
With Assets worth more than $44 trillion, Life Insurance Corporation of India (LIC), the largest institutional investor in the country, plans to invest in green bonds and Interest Rate derivatives.
According to a source, the value of LIC’s stock holdings, the largest institutional investor in Indian markets, is above $14.2 billion.
The state-owned insurer, Life Insurance Corporation of India, came under fire on social media because of its declining stock holdings in Adani Group companies.
LIC, which manages $539 billion in Assets, had exposure to Adani worth more than $4 billion. Many parliamentarians demanded an Investigation into the insurance company’s decision to participate in the businesses run by the Gautam Adani-led Group as the criticism took a political turn.
LIC has a debt exposure of 61.82 billion rupees and had Invested 301.2 billion rupees in shares of Adani Group firms.
Concerning its investments in the equities of the Adani Group, LIC has incurred a Huge Notional loss. Adani Enterprises, Adani Green Energy, Adani Ports, Special Economic Zone, Adani Total Gas, Adani Transmission, Ambuja Cements, and ACC are the seven Adani stocks in which LIC has investments.
The caps will further lessen the vulnerability of the insurer after they have been approved by the LIC Board.
The Hindenburg report noted price destruction in Adani equities. Hindenburg claims that the Adani Group tried to shift attention away from important issues and into a nationalist narrative by Asserting that its study amounted to a “calculated attack on India.”
About the Adani Group, Hindenburg had stated, In short, the Adani Group has tried to equate its rapid rise and the fortune of its Chairman, Gautam Adani, with the success of India itself.
when the Hindenburg report was published and allegations of stock manipulation, accounting fraud, and notable debt among other things were made, all nine of the Adani Group equities have been trading in the deep red.
Concerns regarding the group’s ability to repay loans, the vulnerability of Indian banks, and the state-run insurer Life Insurance Corporation of India’s stake in Adani Group enterprises were raised by the research.
Market Sentiment was negatively impacted by the company’s decision to cancel its 20,000 crores Follow-on-public offering (FPO).
Most of the accusations have been refuted by The Adani Group, and its stock prices have started to rise.
Entities from the Adani Group, for which LIC received harsh criticism, do not even rank among the insurer’s top holdings. Its investment in Adani Ports was 9.14%, while its holdings in Adani Total Gas, Adani Enterprises, Adani Transmission, and Adani Green Energy total 5.96%, 4.23%, 3.65%, and 1.28 %, respectively.
Edited by Prakriti Arora
