Life Insurance Corporation of India (LIC) is planning to transfer around $22 billion from policyholders’ funds to funds earmarked for paying dividends or issuing bonus shares, two sources said on Friday, as the country’s largest insurer aims to shore up both its own net worth and investor confidence.
The state-owned insurance company was listed on Indian stock exchanges in May, but its stock has fallen by more than 35%, wiping out nearly INR 2.23 trillion in investor wealth.
LIC A government official said on condition of anonymity that it is now considering steps to improve its share price.
According to an official with knowledge of the matter, the company’s plan is 1.8 trillion Indian rupees ($21.83 billion), one-sixth of the 11.57 trillion rupees lying in its non-participating funds.
Life insurance companies mainly sell two types of products: first are ‘participating policies’ where profit is shared with customers and second are ‘non-participating’ or ‘non-par’ policies, which have fixed returns. LIC parks the premium collected by it in the non-participating fund.
Both executives said that transferring some of this to shareholders’ funds is a way of boosting investor confidence as it would be an indicator of higher dividend payouts in the future.
He said the surplus in the non-participating fund is earmarked for the shareholders and can be transferred to the shareholders’ fund with approval from the board of LIC, which is yet to be sought.
Both executives said the transfer, if finished, would increase LIC’s net worth by nearly 18 times from its current value of around Rs 105 billion and top the net worth charts among insurers including SBI Life and HDFC Life.
LIC and the finance ministry did not immediately respond to emails from Reuters seeking comment.
Harvinder Singh, partner at law firm DSK Legal, said a large shareholder fund would attract the attention of new and existing investors as the amount would be used by LIC for dividend transfer or for issuing bonus shares in future.
During the listing, the price of LIC shares was Rs 949 per piece but at present it is trading below Rs 600.
According to Refinitiv data, seven out of nine brokerages covering the stock have a ‘Buy’ or ‘Strong Buy’ rating, with an average price target of Rs 840.
Ankur Wahal, Senior Vice President, BOB Capital Markets, said, “This move will increase the book value per share and may help improve sentiment on LIC shares, but may limit the upside. ($1 = 82.4450 Indian Rupee)
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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