The Hindu Business Line : Life insurers keep away from QIPs on valuation concerns

While the largest institutional investor, Life Insurance Corporation of India, has categorically ruled out investing through the QIP route due to price discovery issues, there has not been too much of an interest from private life insurance companies either.

“We do not invest in QIPs. We want to be cautious and conservative in our approach. We prefer the open market route,” Mr Thomas Mathew, Managing Director-in charge of investments, LIC, said recently.

The private companies have ventured into investing in select QIPs only when the valuations of the company have been very attractive.

“The QIP route is one of the avenues for making investments in the secondary market. We evaluate every investment opportunity on a case-to- case basis. We do not have a blanket policy of not investing in QIPs. However, in the last round of QIPs, we were absent from most of them. It was either on account of discomfort with the company’s business or the pricing of the QIPs,” said Mr Manish Kumar, Head-Investments, ICICI Prudential Life Insurance.

QIPs do enable institutional investors to buy a huge block in a company. If an insurance company is looking to pick up a substantial stake in a company, QIP route is a good option rather than going in for 3-4 transactions through the open market route as it helps reduce costs. But the valuation will be important, said Mr Vikram Kotak, Chief Investment Officer, Birla Sun Life Insurance.

“We participated in only one QIP as we found the pricing attractive,” Mr Kotak said.

If the company’s stock is liquid, investors prefer to use the open market route to pick up stake, he said.

“Price discovery is not a problem as we only invest if we like the price. In the last two-three months, we have invested in 3 QIPs,” said Mr Abhijit Gulanikar, Chief Investment Officer, SBI Life Insurance.

According to rating agency Crisil, 13 companies raised funds amounting to Rs 12,500 crore through the QIP route in 2009.

Some of them include Unitech, Indiabulls Real Estate, Sobha Developers, HDIL, Bajaj Hindustan, Emami, Sree Renuka Sugars, Dewan Housing, Network 18, HCC, Power Trading Corporation and GVK Power.

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