SBI may sell up to 5% stake in SBI Life Insurance

Mumbai: State Bank of India Ltd (SBI) is holding talks with private equity funds to sell as much as 5% in SBI Life Insurance Co. Ltd, said three people aware of the development, including an SBI official.

The names of the private equity funds the bank has approached could not be immediately ascertained.

SBI Life is a joint venture between State Bank of India and BNP Paribas Cardiff. SBI owns 74% in the life insurer.

“The process to sell up to 5% stake in the SBI Life is already underway, and the bank is involved in discussions with some investors,” said one of the three people cited above, requesting anonymity, as the talks are private. SBI Capital Markets Ltd is advising the bank on the investment, the person said.

The stake sale could fetch the bank as much as Rs1,950 crore, according to a second person cited above.

“They are seeking a valuation of at least three times the financial year 2015-16 embedded value of Rs13,000 crore. ICICI Prudential Life listed at a multiple of over three times its FY16 embedded value, so the bank feels that this valuation should be achievable,” he said.

SBI is exploring the option of selling a stake in SBI Life, said a senior official at the state-owned bank on condition of anonymity. “The bank hasn’t taken a call on the quantum of stake, but expect the deal to be completed in Q3,” the official said.

“SBI Life is exploring options for the stake sale,” the bank said in an emailed response.

The plan to sell a stake comes at a time when the life insurer has been firming up plans to go public.

In May, a report in the Business Standard said that the insurance firm is planning to go public in 2017, citing the company’ top management.

“The private placement of shares before the IPO will help the company figure out an indicative price for the IPO,” said the second person.

Before it went public in September, ICICI Prudential Life Insurance Co. Ltd too sold shares through a private placement.

In November, ICICI Bank Ltd sold 6% of its stake in its life insurance joint venture ICICI Prudential Life Insurance. Of this, 4% stake was sold to PremjiInvest and its affiliates. The remaining 2% stake was picked up by Compassvale Investments Pte Ltd, a unit of Singapore-based investment company Temasek Holdings. The transactions, worth around Rs1,950 crore, valued the firm at Rs32,500 crore.

When ICICI Prudential Life Insurance launched its Rs6,057 crore IPO last month, it managed to sell shares to investors at a valuation of Rs47,955 crore. However, shares of ICICI Prudential Life debuted at a discount to its IPO price on the stock exchanges. At the end of the first day of trading, shares of the insurer closed at nearly 11% below their issue price of Rs.334 per share.

On Thursday, shares of ICICI Prudential closed at Rs316.65 on BSE, giving the firm a market capitalization of Rs45,449.5 crore.

SBI Life’s total assets under management (AUMs) grew by 12% to Rs79,828 crore as on 31 March 2016 from Rs71,339 crore in the previous year. In terms of AUM, the insurer is smaller than ICICI Prudential Life, which had an AUM of Rs1.01 trillion and the Rs1.1 trillion combined AUM of HDFC Life Insurance Co. Ltd and Max Life Insurance Co. Ltd, which have agreed to merge.

SBI Life’s individual new business premium rose by 33% to Rs4,978 crore in 2015-16 from Rs3,757 crore in the previous financial year.

SBI Life reported a 5% growth in net profit at Rs861 crore for the year ended 31 March 2016 from Rs820 crore in the previous year.