Business - LIC plays cash-starved companies’ saviour

Joel Rebello

MUMBAI: Life Insurance Corporation of India (LIC), the largest insurance company in the country, has become a saviour for companies facing a cash crunch. The public sector behemoth has stepped up its direct investments in non-convertible debentures (NCDs) of companies this year.

NCDs are bonds issued by companies to raise money from medium to long-term investors. Large companies usually don’t issue NCDs because they have to pay double-digit interest. But, with cheaper ways of raising capital having dried up owing to global liquidity crunch, Reliance Industries and some Tata Group companies have recently looked at this option.

During April-November this year, LIC invested Rs 23,190 crore in NCDs and plans to invest another Rs 21,810 crore in the remaining months of this fiscal, taking the total investment in NCDs to Rs 45,000 crore by March, a 300% rise over the last year.
There has been a lull in the stock market this year because of which LIC’s investments in the initial public offers (IPOs) of companies has dropped to Rs 164 crore so far this fiscal. But this has been more that made up by investments in NCDs.

N Mohan Raj, executive director, in charge of investments, told DNA Money that he will opt for investing in NCDs in the current situation. LIC is getting a 11-13% assured return on NCDs.

He said LIC has got set parameters on investments like the rating of the company (it should be AAA), amount of investment and the duration which is usually five years and above. “It is on a fixed rate and depends on a host of factors. We review it every six months,” he added.

LIC has traditionally been a huge investor in government bonds, infrastructure projects and also the stock market. LIC is also aiming to invest Rs 18,000 crore more in government securities while in equity market the likely investment will be to the tune of Rs 11,000 crore by the end of March, T S Vijayan, chairman, LIC, said on Monday. Until November 30, LIC’s investment in government bonds was Rs 36,300 crore and in equities it was Rs 29,000 crore. “We see total premium collection in FY09 to the tune of Rs 1,80,000 crore,” Vijayan said.

“The company has invested a total of Rs 1,02, 476 crore so far this year (Apr-Nov) up from Rs 97,000 crore last year,” Vijayan said. The amount includes Rs 12,372 crore in infrastructure and social schemes, Rs 1,342 crore in project loans and Rs 29,000 crore in the secondary market stocks. Vijayan said the company will continue to look at investments wherever valuations are right.

Vijayan said LIC’s non-performing assets are still very healthy at 0.5%. “Our debt-servicing is very good and there is no exclusion for any sectors like real estate but it has to fulfil our standards,” he said.

On Monday, Vijayan launched a single premium close-ended product which gives guaranteed benefits on maturity and death, called ‘Jeevan Aastha.’ Vijayan said there has been a shift to non-equity linked products in the last six months after the sharp drop in the stock market. LIC is targeting a collection of Rs 25,000 crore from this plan. With NW18.