Japan's Nomura buys 35% stake in LIC units for Rs3.1 billion
July 13, 2009
Life Insurance Corp of India (LIC), the country's largest state-run insurer said Japan-based Nomura Asset Management Co Ltd has bought a 35% stake in its mutual fund units for about Rs3.1 billion.
Nomura bought 35% stake each in LIC Mutual Fund Asset Management Co Ltd (LICMF) and LIC Mutual Fund Trustee Co Private Ltd (LICMF Trustee) as a strategic partner, Takumi Shibata, deputy president and chief operating officer, Nomura Holdings Inc said.
This is also the first time; Nomura has tied up with a local partner in a country. "Indian markets offer huge value, but due to certain limitations on part of foreign institutional investors, we have decided to form this joint venture with LIC," Shibata added.
Atsushi Yoshikawa, president and chief executive, Nomura Asset Management, said: “India is one of the fastest growing markets for asset management in Asia and is key to Nomura’s push to be a world-class asset management firm with a strong competitive advantage in Japan and Asia.”
Following the stake sale, LIC MF will be renamed as LIC Nomura Asset Management Co, in which LIC will hold 45% and LIC Housing Finance Co Ltd will hold 20%, besides 35% stake bought by Nomura.
LIC's unit GIC Housing Finance has sold its entire 11.2% stake while LIC Housing Finance has sold its 19.3% in LIC MF to Nomura.
Under the new arrangement between LIC and Nomura, the management control will remain with LICMF, said TS Vijayan, chairman, LIC. He said LIC MF will appoint chief executive, chief investment officer-debt (CIO-D) and chief marketing officer (CMO) while Nomura will appoint chief operating officer (COO) and chief investment officer-equity (CIO-E).
Nomura appointing CIO-E is obvious, since LICMF has had a pathetic record since it launched its first equity diversified funds in 1999. LICMF has messed up its portfolio due to lousy stock selection and has been a consistent underperformer. By appointing CIO-E, Nomura is most likely to shuffle the portfolio of LICMF, which may result in improvement of the fund’s performance.
Out of Rs3.1 billion paid by Nomura, LIC will offer about Rs2.3 billion to its stakeholders like LIC Housing Finance, LIC and General Insurance Co (GIC) while remaining Rs800 million will be invested in to LICMF.
LICMF had Rs324 billion of average assets under management (AUM) as of June 2009, up 74% from its AUM of Rs186 billion a year earlier. To be precise, the fund house has shown improved performance only from November last year, when its total AUM fell to just Rs116.8 billion.
State run mutual fund houses have been roping in global partners in order to bring new products and tighter management control over operations. In November 2004, State Bank of India, the country's largest lender, sold a 37% stake in its unit SBI Fund Management to Societe Generale Asset Management. Last year another state-run lender Canara Bank sold a 49% stake in its unit Canara Investment Management Services to Netherlands-based Robeco Group.
Echoing the same, SMC Capitals Ltd, in a report said, emergence of several mutual funds backed by foreign banks and private sector companies is clearly shifting the AUM in favour of private sector mutual funds.
The market share if state-run mutual funds in the overall AUM have fallen to 21.6% from 71.8% during the period between 2000 and 2009, it added. - Yogesh Sapkale[email protected]