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Govt tells FIs not to sell L&T holdings

Freny Patel & Rumi Dutta in Mumbai

The government is believed to have directed the financial institutions not to dilute their stakes in engineering and cement major Larsen & Toubro which has been in the eye of a storm.

This is to ensure that no single corporate entity is able to take management control at L&T.

Although no FI official is willing to go on record, it was confirmed that the government is not in favour of the financial institutions selling their L&T holdings, considering the critical position L&T occupies in the defence business.

"As in the Escorts case, we have been instructed not to sell the shares," an FI source said.

The collective institutional holding in L&T is around 37 per cent, led by Life Insurance Corporation (17.42 per cent), the Unit Trust of India (10.34 per cent) and General Insurance Corporation (GIC) and its four subsidiaries (8.24 per cent).

GIC, which holds about a 3 per cent stake in L&T, is currently buying L&T shares from the market. A GIC official said: "We are in a position to hike our stake up to 5 per cent as per the internal prudential limits. However, we do not anticipate increasing our shareholding to that extent."

GIC officials said they saw a great possibility of the L&T scrip rising. While there was currently excess capacity in cement and steel, in three years, considering the current 10 per cent annual growth in demand, this capacity would be easily absorbed and these sectors would look up, GIC officials said.

LIC has about a 17 per cent stake in L&T. As it has already crossed the 10 per cent permissible investment limit set by the Insurance Regulatory and Development Authority, LIC is not in a position to raise its stake.

As per the investment norms laid down by the IRDA, no insurance company can have more than a 10 per cent stake in the combined equity and debt capital of a non-banking entity.

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