The market regulator has asked Life Insurance Corporation to trim its stake in National Stock Exchange by 5 per cent, as the state-run insurer’s acquisition of IDBI Bank has caused a breach of the ownership cap set for the members of the stock exchange.
Securities and Exchange Board of India (Sebi) rules limit the total shareholding of trading and associate members in stock exchanges at 49 per cent.
LIC and IDBI Bank both held stakes in NSE, but LIC’s holding was outside this rule as it was classified as a strategic investor and not a member.
Stake may be worth more than Rs 2,000 crore
That changed with the acquisition earlier this year of IDBI Bank, which held a little over 1 per cent in NSE and was a trading member, said two people in the know of the matter. Now, the entire stake of LIC, including that of IDBI Bank, is classified as held by members. This, they said, led to the total holding of such shareholders going beyond the cap by 4.9 per cent, and Sebi issuing the direction to LIC.
Sebi has also frozen nearly 5 per cent of LIC’s voting rights, the people said.
Sebi, NSE and LIC didn’t respond till press time Thursday to emails seeking comment.
The 5 per cent stake could be worth more than Rs 2,000 crore, based on the valuation of NSE in a 2018 deal. IFCI had sold 0.22 per cent of the stock exchange operator for Rs 93 crore, valuing it at Rs 42,000 crore.
LIC was the largest shareholder in NSE with a stake of 12.5 per cent on its own, while IDBI Bank held a little more than 1 per cent, as per the exchange’s shareholding data at the end of June.
Prior to the LIC-IDBI Bank deal, trading and associate members, including the lender, held about 41.5 per cent stake in NSE. But with the addition of LIC’s 12.5 per cent now, this has reached 54 per cent, exceeding the 49 per cent cap set for this class of shareholders. If LIC sells a 5 per cent stake, it would bring down the total holding of trading and associate members to 49 per cent.
LIC has been asked to reduce the stake since its acquisition of IDBI has caused the breach of the shareholding cap.
The regulator brought the restrictions for trading members in order to encourage greater public participation in the exchanges and to reduce the concentration of ownership around the founding members or brokers.
Experts said Sebi’s move was based on the legal provisions applicable. “However, the purpose of the regulation was to limit the influence of brokers/trading members in the exchanges. Since LIC is technically a strategic investor, which owns stakes in dozens of companies apart from NSE, the insurer could have been given exemption,” a securities lawyer said.
IDBI Bank is among the founding members of NSE. Among others, State Bank of India and SBI Caps put together owned 8 per cent of the exchange, while Stock Holding Corporation of India held another 4.4 per cent, as per the June-end shareholding pattern. Foreign institutions owned a 31.6 per cent stake, with marquee names such as Norwest Ventures, Tiger Global and SAIF Partners among the shareholders.
