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Stocks

Coal India Offer Rescued by LIC, Just Like The Old Times

We mentioned in the Coal India OFS analysis that we didn’t see the demand for the offer as very much and the issue might need to be rescued.

This government, like earlier ones, might be calling certain companies to come in before 3:30, such as those named Life Insurance Corporation of India. New emperor, same clothes? This day will tell.

And it turns out that fated call did happen. From Economic Times:

Life Insurance Corporation and other domestic institutions bailed out the government’s biggest disinvestment offering by picking up a substantial chunk of Coal India’s shares in the offer for sale (OFS) that concluded on Friday. The insurer is believed to have invested more than Rs 10,000 crore, helping the new government’s first major disinvestment offering sail past the finish line.

They managed to sell 22,000 cr. worth shares. 10,000 cr. out of 22,000 cr. to LIC alone? That’s a lot. And it was a major chunk of what Insurers bought:

image We don’t know who “others” are, but FIIs bought a total of 6146 cr. in equities on Jan 30 (which will include all trades, not just Coal India) and then they sold nearly 7,000 cr. of other shares.

The last time LIC rescued an offer, it was the ONGC issue in 2012, which was at Rs. 290. With ONGC currently at 350, the return of 21% is sub-par considering the Nifty has gone up more than 40% since then.

The concept of the government forcing the LIC to invest is a threat to the concept of disinvestment. If you’re going to sell from your one arm to the other, just because you are allowed to do “magic” accounting, it really isn’t a sale. But such is life, and it’s fairly obvious that this government has done exactly what the Congress did earlier. Both ways, it’s distasteful and deceitful.

Note to people supporting the new government even if they slapped you in the face: Please advertise this blog as Anti-whatever.

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  • Mark says:

    Agree on LIC rescuing CIL FPO – Granted it is a free article and not Premium – but expect better quality of assessment –
    *) The ONGC issue in 2012, which was at Rs. 290. With ONGC currently at 350, the return of 21% is sub-par considering the Nifty has gone up more than 40% since then.
    Return calculation shd it not be only done on sale? going you your logic – ONGC hit high of 450 in sep 2014 – which is approx 60% retruns matching Nifty returns over this period – this is discounting 200% dividend declared every year.
    It does not matter how much of he offer was bought by others in this case it was 50% of offer bought by retial/fii/mf – the point in consideration is CIL investment grade in which case I would be happy LIC buying even 100% of the share.
    Second Point – LIC is sitting on 40K crores cash – when the market is at all time high what are the investment opportunities? What are the opportunity cost of sitting out – was investing in CIL better than being in Cash – only time will tell.
    P.S. – I dont have LIC policies and Agree with Govt has no business to run any kind of business – Thanks – Mark

    • Mark – yes of course you should do things on sale only, but LIC hasn’t sold at all. True, ONGC looked good for a bit and it is also an investment grade company, but LIC should be buying on its own, and not come in to rescue these issues. If you attempt to rescue an issue, shouldn’t you get a better price? That’s how things should work – if the government wants to desperately offload, it should start offering lower and lower prices and then LIC with other participants will buy.
      Where do you get cash data of LIC? Would like to check out the cash – they need to invest it in govt bonds no?
      If LIC really was interested they should have put their bids in the morning, not at nearly close to 3:30 pm. That smells of a bailout, not of a principle investment. It did the same with ONGC.

  • Senthil says:

    If LIC has that much money, why not the Government just ask LIC to give the required amount as Dividend instead of all this disinvestment stake sale drama?

  • Kaushik says:

    The way Trinamool used Saradha, we find analogy in Centre using LIC bailing out the same way. Only difference is none there to question Centre.

  • Nitin says:

    I think they did one thing right that is to not allow punters to drag the stock down by holding all the roadshows together and keeping the date and price close to chest.
    I think people who have voted expecting the New emperor to be radically different are up for a big disappointment. For me they have done better than last Govt even if they have not done it differently.

  • Ravi says:

    From NSE declaration
    Life Insurance Corporation of India
    284752200
    Equity
    4.508
    30-JAN-2015
    Offer for Sale
    457621861
    7.245
    284752200

  • Sanjeev B says:

    If the LIC has so much funds, can they start by reducing the cost of life insurance? How does our life insurance cost compare with that in other countries?