ICICI Bank to sell Rs1,950 crore stake in life insurance arm

Mumbai: Private sector lender ICICI Bank Ltd on Monday said that its board of directors has approved the sale of 6% stake in its life insurance joint venture ICICI Prudential Life Insurance.

Of this, 4% stake will be sold to PremjiInvest and its affiliates. The remaining 2% stake will go to Compassvale Investments Pte Ltd, a wholly-owned subsidiary of Singapore-based investment company Temasek Holdings, the bank said in a notification to stock exchanges.

“The proposed transaction values the company at Rs.32,500 crore,” ICICI Bank said. This pegs the value of the deal at Rs.1,950 crore.

Upon completion of the transaction, ICICI Bank will hold approximately 68% share of the company, while Prudential Plc, ICICI Bank’s partner in the life insurance business, will maintain its current share of approximately 26%.

The transaction is subject to government and regulatory approvals.

On 31 October, ICICI Bank announced the sale of 9% stake in its general insurance subsidiary ICICI Lombard General Insurance Co. to Fairfax Financial Holdings for Rs.1,550 crore. The proposed transaction valued the general insurance company at Rs.17,225 crore.

According to data from Thomson Reuters, 18 deals have been announced in the insurance sector since the foreign investment limit was hiked in March this year.

Foreign investors started ploughing in capital in their Indian counterparts after they were allowed to increase their stake from 26% to 49%.

Not all companies have disclosed deal values. A Mint analysis of deals where value has been announced suggests that they tot up to over Rs.7,000 crore.

Some of the foreign strategic partners who have increased their stake or have offered to dial up include HSBC Insurance Holdings Ltd in Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd; Standard Life Plc in HDFC Standard Life Insurance Co. Ltd, Aviva Plc in Aviva India Life Insurance, Insurance Australia Group Ltd in SBI General Insurance, among others.

According to deal value, Monday’s ICICI Prudential transaction worth Rs.1,950 crore leads the tally, followed by Standard Life Plc’s investment of Rs.1,705 crore in HDFC Standard Life Insurance Co. Ltd to increase its stake from 26% to 35%.

“Insurance will be the largest segment in financial services where overseas capital has flowed in this year. Most strategics which have increased their stake had put and call options as part of their previous agreements which is now being exercised by them,” said Rajeev Suneja, partner at EY.

In some cases investors have not hit the 49% ceiling, leaving headroom for foreign institutional investors (FII) to come in when these firms eventually list.

“If the company needs to infuse more capital in the business it can access cheaper capital from the public markets and thus it makes sense for the partners to not completely increase their holding to the 49% limit,” said Vineet Toshniwal, managing director at Equirus Capital Pvt. Ltd, a mid-market investment bank. If the foreign investors continue to hold 49% and there is no room left for newer FIIs to come in the stocks could languish, he added.

According to a September report of India Brand Equity Foundation, India’s life insurance sector is the biggest in the world with about 360 million policies which are expected to increase at a compound annual growth rate (CAGR) of 12-15% over the next five years.

The report added that the general insurance business in India is currently a Rs.78,000 crore ($11.7 billion) premium per annum industry and is growing at a healthy rate of 17%.

Though the insurance sector has managed to draw so much capital in just seven months, the industry hasn’t picked up over the last three-four years.

“Insurance penetration has not picked up in India over the last few years but in developed countries it is difficult to develop this business so they are looking at a long-term horizon and expect it to turn around later,” Suneja added.

To be sure, the foreign capital inflows since the foreign limit hike may be lower than initially expected.

When the limit was increased, SBI in its research report called Ecowrap released in March said that the FDI limit hike could result in inflows of Rs.40,000 crore to Rs.60,000 crore over five years and immediate inflows of around Rs.20,000 crore.

Since foreign direct investment was allowed in the insurance sector, companies have managed to raise over Rs.33,749 crore and require an equal amount if not more over the next decade, the report added.