Is it divestment or a buy back through a family controlled firm


On 8th February , 2013, i wrote about the ‘Oxytocin’ injections that the Government is giving to our economy to draw out milk…….here is the proof.

Life Insurance Corporation was the most dependable automated teller machine for the government in the past year, buying record amounts of bonds and stocks of public-sector firms. Which was shown as ‘successful divestment by the Government’.

The state-run insurer’s purchase of government bonds rose 20%, and it bought nearly 40% of the shares sold via offer for sale (OFS) in four out of total seven PSUissues, said people familiar with the investments.

Of the Rs 4.67 lakh crore raised by the government through securities, LIC provided over Rs 1.10 lakh crore, or 21.4% of the total figure.

LIC invested Rs 236 crore in Nalco (35% of the OFS size), Rs 142 crore in RCF (45%), Rs 608 crore in Hindustan CopperBSE 0.87 % (44%), Rs 923 crore in NTPCBSE -0.35 % (5%), Rs 1,069 crore in SAIL (71%) and Rs 282 crore in NMDCBSE 2.50 % (4.7%).

LIC had contributed 81% to the government’s Rs 14,000-crore mop-up from share sales in 2011-12 by investing Rs 11,400 crore in ONGC

LIC invests in government securities with a view to holding them till maturity, and mark-to-market losses in the interim are not good. It would be a good practice to evaluate returns on redemption each time it happens and compare it with benchmark government bond rates. “Any shortfall in the return should be compensated by the government,”

Also, LICs mandate to invest 50 % in Government securities should be re-looked .

So the big question is , was this really divestment or a ‘back door buyout’ & a ‘face saver’ from a state controlled financier with public money, which could have yielded better returns had the LIC invested into blue chip companies  . We all know that the state run PSUs will perform poorly when compared to other blue chip firms . Does it not warrant a CAG inquiry into the management ( mismanagement ) of LICs investments under duress ( from Chidambaram ) ?

LIC is failing in its fiduciary responsibilities to its investors ( people of this country who buy insurance policies from LIC ) , who invest Rs. 450 crore a day in LIC . Time to raise this issue and realise , that the actual divestment figure shown by the Government was a back door forced buyback by a family firm ( Government’s family firm- LIC )

Rajendra Pratap Gupta

http://www.commonmansblog.com

Source : http://economictimes.indiatimes.com/news/economy/finance/lic-turns-out-to-be-the-governments-atm-buys-record-amount-of-bonds-and-psu-stocks/articleshow/19313481.cms

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