Small policyholders of the country's largest life insurer are carrying the can for the government's ambitious disinvestment programme. Almost all of Life Insurance Corporation (LIC) of India's investment calls in the government's disinvestment programme that restarted in 2009 have gone wrong, resulting in huge notional losses for policyholders in the underlying schemes.
couple of months earlier, the government had allowed LIC to raise its stake in state-owned companies to over 10 per cent to help recapitalise these.
According to data compiled by the BS Research Bureau, LIC has invested around Rs 12,400 crore in seven recent divestment issues since 2009, accounting for a quarter of more than Rs 45,000 crore through public offers in the past two years. The BS Research Bureau compiled the data from the quarterly shareholding filings of 13 state-owned firms which participated in the disinvestment programme since 2009.
These holdings are worth Rs 9,379 crore at current prices. On a cumulative basis, this investment has seen an erosion of 24.5 per cent till date, resulting in a notional loss of Rs 3,038 crore. Unless there is a dramatic turnaround in the markets, these losses will eventually get passed on to the policyholders who have purchased insurance policies and unit-linked investment plans.
This is excluding last week's last-minute investment in the Rs 12,766-crore offer for sale of ONGC shares. Losses are expected to swell if the seven per cent post-auction fall in the explorer's share prices is taken into account.
LIC has been investing money collected from individuals in savings and insurance schemes, buying huge chunks of government shares in the disinvestment programme. While the government insists the institution is investing by its "investment rationale", there are not many takers for this theory.
Further, the results produced by the so-called "investment rationale" speak for itself. While the companies it had taken big bets on have seen their share prices tumble, at least four public offers the insurer avoided have performed very well.
Of the seven companies LIC bought stakes in, six are in the red. The biggest losses came in investments such as Shipping Corp (50 per cent), PTC India (41 per cent) and NMDC (39 per cent). In terms of absolute losses, the NMDC investment saw the biggest erosion of Rs 2,293 crore, followed by Rs 654 crore lost in NTPC. In SJVN, which has lost a quarter of its value since its public issue, LIC's Market Plus 1 scheme held 47.5 million shares as of December 2011. However, it is not clear what part of this stake was picked up in the said IPO.
Like in SJVN, the insurer has been trying to make amends by picking additional shares at lower prices in some other counters, too. It has added nearly 56 million shares in Shipping Corporation, 23 million in NTPC and one million in NMDC, according to the shareholding data of these companies for the quarter ended December 2011. Its only primary market investment in the green is the Rs 73-crore investment in Power Grid Corp.
This investment has seen a gain of 22 per cent or Rs 17 crore.
One of the usual explanations has been the institution buys shares for the long term and that these offers provide it an opportunity to pick good stocks for the long term. However, LIC did not buy shares in the biggest and most successful public issue of the country, Coal India, which has gained 35 per cent since. Other successful issues such as OIL India, Rural Electrification and United Bank of India, which have given decent returns to investors, were also inexplicably shunned by the country's largest institutional investor. On the contrary, these issues were lapped up by foreign institutions and private sector funds, who have laughed all the way to the bank.
An email sent to the LIC spokesperson seeking comments did not elicit any response.
In addition to the choice of stocks, the price at which these stocks were picked has also raised eyebrows in the analyst community. Several analysts have questioned the insurer's rationale of picking the ONGC stock, which did not see enough demand at the floor price of Rs 290, at a substantially higher price. The average price of the sale, in which LIC is said to have bought nearly 400 million shares, was Rs 303.
The ONGC sale is fresh in the mind, but LIC has been the lender of last resort for the government's divestment programme ever since it began in mid-2009 after the United Progressive Alliance returned to power, but without the support of Left parties.
The first crisis call came to LIC in early 2010, when the government was pushing the sale of NTPC through a follow-on public offer. The rescue story continued as the insurer picked over 168 million shares in the NMDC FPO, steeply priced at Rs 300. Both these shares are trading much below the FPO levels at Rs 178 and Rs 184, respectively. Engineers India, which offered shares at Rs 290, is now trading at Rs 273.70.
According to data compiled by the BS Research Bureau, LIC has invested around Rs 12,400 crore in seven recent divestment issues since 2009, accounting for a quarter of more than Rs 45,000 crore through public offers in the past two years. The BS Research Bureau compiled the data from the quarterly shareholding filings of 13 state-owned firms which participated in the disinvestment programme since 2009.
These holdings are worth Rs 9,379 crore at current prices. On a cumulative basis, this investment has seen an erosion of 24.5 per cent till date, resulting in a notional loss of Rs 3,038 crore. Unless there is a dramatic turnaround in the markets, these losses will eventually get passed on to the policyholders who have purchased insurance policies and unit-linked investment plans.
This is excluding last week's last-minute investment in the Rs 12,766-crore offer for sale of ONGC shares. Losses are expected to swell if the seven per cent post-auction fall in the explorer's share prices is taken into account.
LIC has been investing money collected from individuals in savings and insurance schemes, buying huge chunks of government shares in the disinvestment programme. While the government insists the institution is investing by its "investment rationale", there are not many takers for this theory.
Further, the results produced by the so-called "investment rationale" speak for itself. While the companies it had taken big bets on have seen their share prices tumble, at least four public offers the insurer avoided have performed very well.
Of the seven companies LIC bought stakes in, six are in the red. The biggest losses came in investments such as Shipping Corp (50 per cent), PTC India (41 per cent) and NMDC (39 per cent). In terms of absolute losses, the NMDC investment saw the biggest erosion of Rs 2,293 crore, followed by Rs 654 crore lost in NTPC. In SJVN, which has lost a quarter of its value since its public issue, LIC's Market Plus 1 scheme held 47.5 million shares as of December 2011. However, it is not clear what part of this stake was picked up in the said IPO.
Like in SJVN, the insurer has been trying to make amends by picking additional shares at lower prices in some other counters, too. It has added nearly 56 million shares in Shipping Corporation, 23 million in NTPC and one million in NMDC, according to the shareholding data of these companies for the quarter ended December 2011. Its only primary market investment in the green is the Rs 73-crore investment in Power Grid Corp.
This investment has seen a gain of 22 per cent or Rs 17 crore.
One of the usual explanations has been the institution buys shares for the long term and that these offers provide it an opportunity to pick good stocks for the long term. However, LIC did not buy shares in the biggest and most successful public issue of the country, Coal India, which has gained 35 per cent since. Other successful issues such as OIL India, Rural Electrification and United Bank of India, which have given decent returns to investors, were also inexplicably shunned by the country's largest institutional investor. On the contrary, these issues were lapped up by foreign institutions and private sector funds, who have laughed all the way to the bank.
An email sent to the LIC spokesperson seeking comments did not elicit any response.
In addition to the choice of stocks, the price at which these stocks were picked has also raised eyebrows in the analyst community. Several analysts have questioned the insurer's rationale of picking the ONGC stock, which did not see enough demand at the floor price of Rs 290, at a substantially higher price. The average price of the sale, in which LIC is said to have bought nearly 400 million shares, was Rs 303.
The ONGC sale is fresh in the mind, but LIC has been the lender of last resort for the government's divestment programme ever since it began in mid-2009 after the United Progressive Alliance returned to power, but without the support of Left parties.
The first crisis call came to LIC in early 2010, when the government was pushing the sale of NTPC through a follow-on public offer. The rescue story continued as the insurer picked over 168 million shares in the NMDC FPO, steeply priced at Rs 300. Both these shares are trading much below the FPO levels at Rs 178 and Rs 184, respectively. Engineers India, which offered shares at Rs 290, is now trading at Rs 273.70.
MUKESH AMBANI is Asia's richest person with a net worth of $26.8 billion, even after his shares in India's top company by market value slid 18 percent over the past 12 months, according to the Bloomberg Billionaires Index.
Reliance Industries Ltd. Chairman Ambani
Mukesh D. Ambani, chairman of Reliance Industries Ltd
Ambani, who owns 44.7 percent of Reliance Industries Ltd. (RIL), Operator of the world's biggest oil refining complex and owner of India's biggest natural gas field, ranks 11th among the world's richest. The 54-year-old industrialist's stake in the Mumbai-based energy explorer and refiner is worth $24 billion.
Last year's 35 percent drop in Reliance's share price prompted Ambani to offer to buy back the stock for the first time in seven years.
Reliance's cash more than tripled in the past two years to $15 billion after BP Plc (BP/), Europe's second-largest oil company, bought stakes in 21 fields in India for $7.2 billion last year.
Two years ago, India's richest man completed his 27-story house in Mumbai, where half of the city's population lives in slums. The skyscraper, called Antilia, is worth at least $500 million, according to Anuj Puri, chairman and country head of Jones Lang LaSalle.
UK regulators and global banks are discussing a potentially far-reaching overhaul of the calculation and regulation of interbank lending rates, amid claims that the benchmark for $350tn contracts worldwide may have been subject to manipulation.
The review comes as regulators in North America, Europe and Japan have expanded their year-long probes into alleged manipulation of the London Interbank Offered Rates, and other benchmark lending rates, which help set the price of financial products, including mortgages and credit cards.
The Libor rate-setting process is not considered a regulated activity under the UK Financial Services and Markets Act, but US and European banks and interdealer brokers have suspended or fired more than a dozen traders in recent months following allegations of abuse.
The British Bankers' Association, which sponsors Libor, and many of the banks that help set it met Treasury officials, the Bank of England and the Financial Services Authority on Monday to kick off the review process. The rethink will take into account regulatory changes such as the planned imposition of new global bank liquidity requirements in 2015.
The BBA said in a statement: "As part of the normal reviewing processes of Libor, a number of contributing banks met today to consider future regulatory and market developments, such as the incoming liquidity rules, relevant to the parameters that Libor measure."
It added that "a technical discussion with interested groups including users of the rate will commence shortly", and promised to keep the market and government officials updated.
People familiar with what was discussed in the meeting said the review could encompass everything from revamping the way Libor rates are set to imposing new regulatory oversight and compliance requirements on participating banks.
Industry participants did much of the talking, discussing market concerns about the rate-setting process and making suggestions on how to improve it. The FSA, Bank and Treasury representatives did not make clear what approaches they favoured.
Libor is set daily under the auspices of the BBA in 10 currencies. Panels of banks submit estimates of their unsecured borrowing costs over 15 different time periods to Thomson Reuters, and these are used to calculate the daily rate.
Oversight of the process is managed by the Foreign Exchange and Money Markets Committee, which is independent of the BBA and chaired by a representative of a panel bank that submits rates in at least three currencies. Thomson Reuters is responsible for looking into any outlying rates but does not make public its investigations – or any reports to the oversight committee.
Bajaj Holdings takes 3% in MCX
Rahul Bajaj-promoted Bajaj Holdings and Investment Ltd has picked a 3.06 per cent stake in the listing-bound Multi Commodity Exchange (MCX).
In a notice to investors, MCX indicated Bajaj purchased 1.56 million MCX shares from Passport Capital LLC. The deal would lead to a change in the list of top 10 shareholders in the prospectus, the company added.
Passport Capital, which operates as a hedge fund, was the fourth largest shareholder in the company with 2.5 million shares or 4.9 per cent stake as on February 10, when the company filed a draft red herring prospectus.
After this deal, Bajaj Holdings will take a joint ninth slot in the top shareholders list, holding an identical number of shares as Nabard. Passport Capital, with less than one million shares, will drop out of that list.
According to sources, transfer agreement between Passport and Bajaj Holdings was struck at Rs 800 per share, a fews days before the MCX offering opened for subscription. The source added the Forward Markets Commission (FMC) is set to clear the share transfer.
Passport Capital had acquired these MCX shares in two tranches in the past, at Rs 860 and Rs 1,155 per share. Thereafter, MCX had issued bonus shares in the ratio of 1:4 to shareholders. After adjusting for the bonus issue, the cost of each share acquisition for Passport comes to Rs 900 plus, said sources.
HT Media, another shareholder with 0.2 per cent stake, also exited the company in the run up to the IPO, according to the above notice. MCX shareholders have raised Rs 663 crore in an offer for sale, pricing each share at Rs 1,032.
The issue is getting listed in early March.
In June 2011, Passport had sold 1.6 per cent stake for Rs 62 crore in Financial Technologies (India) Ltd, one of the promoters of MCX. Passport had been cutting its stake in MCX since 2009, when it held 10 per cent in the company.
Passport Capital had started building up stakes in Financial Technologies during January 2007, when its share was trading at around Rs 1,700. The hedge fund continued to build up stake in the firm as its stock price reached over Rs 3,000 per share and was trading between Rs 2,400 and Rs 2,700 during late 2007, thus, increasing its stake to 4.23 per cent by March 2008. The fund had later averaged out its investment by buying more shares after the financial meltdown in 2008, raising its stake to 10 per cent in March 2009.
San Francisco-based Passport Capital LLC, founded by John H Burbank III in 2000, manages approximately $4.7 billion in assets. It has invested in other Indian companies like VA Tech Wabag and Koutons Retail.
Other shareholders of MCX include Euronext, Merrill Lynch, IFCI, Intel Capital and New Vernon Private Equity, besides ad-for-equity investors HT Media and Bennett, Coleman & Co, among others.
A disorderly default in Greece would probably leave Italy and Spain needing outside help to stop risks spreading and cause more than €1 trillion damage to the eurozone, the Institute of International Finance (IIF) said.
"There are some very important and damaging ramifications that would result from a disorderly default on Greek government debt," the IIF said in a document obtained by Reuters.
"It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed €1 trillion."
The document, obtained from a market source, was dated February 18 and marked IIF Staff Note: Confidential.
The IIF wants bondholders to sign up by a Thursday (tomorrow) deadline for a bond swop deal aimed at saving Greece more than €100 billion and putting the country on a more stable footing.
If it fails to win support, the European Central Bank would likely suffer substantial losses, the document said, estimating the central bank's exposure to Greece of €177 billion was over 200% of its capital base.
Both Ireland and Portugal would need more outside help to insulate them from Greece, which could cost €380 billion over five years, the IIF estimated.
A disorderly Greek default would also probably require "substantial support to Spain and Italy to stem contagion there", which could cost another €350 billion, it said.
The IIF, which helped negotiate the bond swop deal on behalf of creditors, said there would be more massive bank recapitalisation costs, which could easily hit €160 billion. —Reuters
With electioneering in five states coming to an end, state-owned oil companies are pushing for raising petrol price by over Rs 5 per litre but the actual increase would depend on the government nod.
"We are losing Rs 5.10 per litre on petrol currently," a senior oil company official said. "With counting for Assembly elections in five states ending today, we would be approaching the government for appropriate directions on price revision."
Oil firms had last revised petrol prices on December 1 after which rates have not been changed because of Assembly elections in states like Uttar Pradesh.
Oil cos push for over Rs 5 per litre hike in petrol price
Indian Oil, Bharat Petroleum and Hindustan Petroleum together have lost over Rs 900 crore since the last revision which was done at international gasoline price (the benchmark for deciding domestic retail rates) of $ 109 per barrel. Gasoline rates have since risen to $ 130.71 a barrel.
"In all probability, petrol price will be increased but by how much is for the government to decide," the official said.
With Congress faring poorly in the Assembly polls, it remains to be seen if the UPA-government would give nod for an increase just ahead of the Budget session of Parliament which begins on March 12.
Oil firms also want an increase in diesel and cooking gas prices but that call would have to be taken by an Empowered Group of Ministers, where key allies like Trinamool Congress and DMK are represented. Mamata Banerjee-led TMC is opposed to any fuel price hike.
State-owned oil firms lose Rs 13.55 per litre on diesel. They also lose Rs 29.97 a litre on kerosene and Rs 439 per 14.2-kg domestic LPG cylinder.
Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum are losing about Rs 450 crore per day on sale of diesel, domestic LPG and kerosene.
Officials said the call on raising diesel prices would be taken by the EGoM as and when it meets while petrol rates would be revised by oil firms themselves.
Petrol price were freed from government control in June 2010 but rates have not moved in tandem with imported cost.
While petrol price were last revised on December 1 when they were cut by Rs 0.78 per litre to Rs 65.64 per litre in Delhi, diesel currently costs Rs 40.91 a litre.
