With the government strapped for cash, the country?s largest domestic institutional investor, Life Insurance Corporation of India (LIC), has started subscribing to a slew of preferential allotments. At least half a dozen public sector banks (PSBs) have decided to allot a large chunks of shares to the insurance sector behemoth.
?It is a win-win situation for both banks and the government,? said an institutional dealer with an LIC empanelled brokerage. ?The government maintains ownership through LIC and the banks gets capital.?
IOB, for instance, will allot shares at around R98 while the market price is around R107. That will never be possible if LIC buys from the open market. With Sebi?s recent amendment, LIC can participate in most preferential offers,? he added.
LIC had put a complete ban on participating in such preferential allotments after the bribe for loan scam surfaced in 2010. Institutional traders dealing with the insurance heavyweight further say that it had also become selective on executing bulk or block deals.
However, with the government unable to cater for banks? needs, the latter have had little choice but to place shares with LIC. The Securities and Exchange Board of India (Sebi) recently amended the norms allowing any listed entity to make a preferential allotment to insurance companies or mutual fund even if such institutions have sold the company?s shares in the last six months. With that, insurance companies and mutual funds now have headroom to buy into stocks even if they have sold them recently.
In the last few days, Bank of India (BoI), Punjab National Bank (PNB), Dena Bank, UCO Bank, Indian Overseas Bank (IOB) and Allahabad Bank have either approved the allotment of shares on a preferential basis to LIC or have called a board meet to get the final approvals.
Interestingly, LIC already holds a significant stake in all the six PSBs. According to Capitaline, LIC holds 8.93% stake in BoI, while its stake in PNB and Allahabad Bank is pegged at 8.54% and 8.65%, respectively. It holds a large chunk of shares in Dena Bank (6.17%), IOB (7.37%) and UCO Bank (8.44%). It is likely that LIC will choose to maintain its holdings in the banks since the government would not want to dilute ownership in banks.
According to stock exchange filings, BoI has decided to allot up to seven crore equity shares to LIC, among others, and has called an EGM on March 24. UCO Bank has approved the proposal to issue 3.14 crore equity shares to LIC.
Dena Bank has approved issuance of equity shares on preferential basis to LIC subject to a maximum of five per cent of the post issue capital of the bank. Further, the board of PNB and Allahabad Bank will be meeting on March 20 and March 24, respectively to decide on the allotment of shares to LIC. IOB has also decided to allot a maximum of 3.09 crore shares to LIC at R97.82 per share.