Moody’s downgrades LIC’s Rating from Baa2 to Baa3

Global credit rating agency Moody’s on Monday downgraded the country’s leading financial institution, Life Insurance Corporation of India (LIC), following its recent investments in the oil and gas giant ONGC as well as a number of state-owned banks.

LIC lost its higher rating as Moody’s downgraded it from Baa2 to Baa3, although it kept the outlook stable.

Giving the rationale for the downgrade, Moody’s said, “It reflects our assessment that LIC’s creditworthiness is highly correlated with that of the government’s credit strength, considering
(a) the extent to which its business depends on the domestic economy;
(b) the limited degree of cross—border diversification within its operation;
(c) its significant level of balance-sheet exposure to domestic sovereign debt, relative to its capitalisation; and
(d) the absence of strong foreign ownership.”

Reportedly, under the government order, LIC had picked over 90 per cent of the 5 per cent follow-on offer from the ONGC in early March for a premium. Since then, the oil major’s scrip has been trading very low.

During the January-March quarter of the last fiscal, LIC was again forced to increase stakes in state-owned banks such as Syndicate Bank, Bank of Maharashtra and IOC among others, as the cash-starved government did not have the funds to pick stakes as part of the fund infusion into banks.