Life Insurance Corp. of India (LIC), the largest shareholder in National Stock Exchange of India, missed the Securities and Exchange Board of India (Sebi)’s 28 August deadline to divest a 4.9% stake in the stock exchange.
The shareholding threshold in NSE was breached when LIC acquired a 51% controlling stake in IDBI Bank. This led to the holding of trading members in NSE breaching the 49% mark under the Stock Exchange and Clearing Corp. (SECC)’s norms.
LIC’s holding, of 12.51%, was earlier not considered to be of a trading member. Rather, it was categorized as a strategic investor.
IDBI Bank, with less than 1% stake, was always categorized as a trading member. With LIC acquiring control of IDBI Bank the insurance company was reclassified as a trading member.
Before the deal, trading members held about 42% in NSE, but with addition of LIC’s 12.5% stake, the trading members now hold 53.89% in the exchange, or 4.89% above the threshold.
Sebi had given LIC two deadlines to divest the excess stake. The first was on 27 December 2019, which was subsequently extended by eight months, according to NSE’s annual report for the financial year 2020.
This excess shareholding and the associated voting and dividend rights now stand frozen. “Sebi directed LIC to divest its shareholding in NSE by 4.89% to reduce the TM/CM (trading member/ clearing member) shareholding in NSE to 49% within 12 months from the date of fall in public shareholding of NSE, 28 December 2018. NSE was also advised to inter-alia freeze LIC’s voting rights and all corporate action in respect of 4.89% till the time it was divested,” NSE said.
“Upon LIC’s request to Sebi, Sebi granted additional time of eight months to LIC for divestment of the 4.89% stake from 27 December 2019,” it added.
An email query to LIC seeking a response on whether it has sought another extension, or it would prefer to offload when the NSE goes public, and if it had decided on a method to reduce the shareholding, was not answered till press time. Mint reported on 28 August that Sebi is likely to grant an in-principle nod to NSE’s long-pending and awaited IPO soon.
Based on recent deals of NSE’s unlisted shares being sold in the open market, India’s largest exchange by trading volumes is valued at ₹42,000 crore. As such, LIC’s 4.9% stake could be valued at over ₹2,000 crore.
LIC’s excess shareholding has also impacted its dividend payout. NSE had declared final dividend for FY19 and interim dividend for FY20, which were paid to all eligible shareholders except LIC to the extent of 4.89% shares and were kept in abeyance.
“Final dividend for FY2018-19 amounting to ₹19,36,44,000 and interim dividend for FY2019-20 amounting to ₹23,72,13,900 to be paid to LIC had been transferred by NSE to the respective unpaid dividend accounts. Further, upon request of LIC to mitigate the interest loss and following Sebi no objection, an arrangement has been worked out with the dividend banker for the unpaid dividend amounts on behalf of LIC,” said NSE in the annual report.