In an interesting turn of events, the government has decided to ask the Life Insurance Corporation to consider picking up 10 per cent stake in the troubled Kingfisher Airlines.

"The government has asked LIC to consider it, but the final decision will be taken by the insurer," said an official familiar with the development.

"If a company like LIC, the largest domestic institutional investor, puts money in Kingfisher Airlines, it will give confidence to the lenders as well," he added.

Its lenders, who hold around 23 per cent of the debt-laden airline, have asked the promoters to bring in equity before they lend more.

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LIC, on the other hand, has enough headroom in its equity investment target for the current financial year.

Given the attractive valuation, it may get a good bargain.

Going by the present market valuation, it could be quite a buy for LIC, as the airline's share price has tanked 62 per cent in the current financial year to Rs 24.95 a share on Friday from Rs 66.05 on April 1.

Going by the present market value, LIC would be required to invest Rs 124 crore (Rs 1.24 billion) for 10 per cent stake.

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An LIC official said the institution was yet to take a call but it was an option.

"We have to analyse whether it fits into our investment strategy, where we see long-term value in a company. We are closely watching the developments surrounding the company," said an LIC official.

The official declined to comment on whether it was a mandate from the government to invest in the airline, but added whenever LIC planned significant exposure in a particular company (say, 5-10 per cent stake) it kept the regulator and the government in the loop. When contacted, Vijay Mallya, UB Group chairman, and promoter of Kingfisher Airlines, said the company had not approached LIC in that regard.

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Mallya held meetings with banks on Friday and sought a working capital loan of Rs 400 crore (Rs 4 billion) to meet day-to-day expenses, over and above letters of credit and guarantees worth Rs 445 crore (Rs 4.45 billion), bankers familiar with the development said.

The banks led by State Bank of India, which have lent close to Rs 7,000 crore (Rs 70 billion) to the company, asked the promoters to bring in equity worth Rs 400 crore (Rs 4 billion) before any further loans.

At present, LIC can invest up to 10 per cent of capital employed by the investee company, or 10 per cent of the fund size in a corporate entity, whichever is lower.

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The capital employed includes share capital, free reserves and debentures or bonds.

During 2010-11, LIC invested Rs 1.96 lakh crore (Rs 1.96 trillion), of which Rs 43,000 crore (Rs 430 billion) was invested in equities.

In the current financial year, the insurer has plans to invest a similar amount in equities. However, given the volatile nature of the equity market, during the first six months of the current financial year, LIC has invested only around Rs 15,000 crore (Rs 150 billion) in equities.

The total equity investment in the same period last year stood at Rs 54,000-55,000 crore (Rs 540-550 billion).