LIC to Invest Rs. 6,000 Crore in NHAI Bonds

India’s largest institutional investor Life Insurance Corp. of India (LIC) has decided to part-fund the government’s ambitious projects till completion and initially invest up to Rs6,000 crore in bonds sold by the National Highways Authority of India (NHAI) this financial year alone.

LIC’s move was confirmed by three persons, including two top LIC officials, all of whom requested anonymity as the decision is yet to be made public.

The NHAI bonds being offered to LIC are the highest rated paper backed by sovereign guarantees with a yield of 70-80 basis points higher than government securities, one of the two LIC officials said. One basis point is one-hundredth of a percentage point.

“LIC will invest around Rs. 6,000 crore in the non-convertible debentures (NCDs) floated by NHAI this financial year, to begin with. The investment will be done this month-end or early next month,” the official added.

“NHAI wants at least a Rs30,000 crore commitment from LIC for the road-expansion projects till completion as per the latest plans. The NHAI officials met LIC recently and LIC feels it is a great investment that fits in well with LIC’s own business strategy,” he said.

LIC’s move follows a similar step by the Employees’ Provident Fund Organisation or EPFO, which said in August it will invest Rs5,000 crore in NHAI bonds. With the two largest state-run fund managers agreeing to assist the NHAI in its fund-raising plans under the National Highway Development Project (NHDP), the government’s long-standing plans to connect the country’s top locations through world-class highways are set to be put on the fast track.

According to NHAI, the total cost of NHDP has been estimated at Rs54,000 crore. Of this, at least Rs34,000 crore will be raised through external assistance, market borrowings and private sector participation, while the remaining Rs20,000 crore has to come from the cess collected by the government from petrol and diesel sales.

The investment approach of LIC, which controls total assets worth about Rs21 trillion and manages insurance contracts for at least 250 million people through some 300 million life insurance policies, augurs well for the company’s fresh strategies in the insurance market.

LIC is currently focusing on increasing its pension and annuity business, which calls for higher fixed-income investments such as the one in NHAI bonds. Annuity requires a matching asset class which gives a steady income, i.e. fixed income.

On 7 April, Mint reported that LIC was likely to invest close to Rs2.7 trillion in the capital markets during the year to March 2017. LIC will invest around the same amount in equities as it did last year, and increase its investments in debt instruments. It invested around Rs60,000 crore in equities last year.