SBI Life’s IPO for Rs 6.5k cr may be largest in 7 years

Chennai/Mumbai: The initial public offer (IPO) for SBI LifeInsurance, which aims to garner up to Rs 6,500 crore, could become the largest such offer in the country in almost seven years. On Friday, State Bank of India (SBI), the country's largest bank, said it was in the process of appointing eight merchant bankers for SBI Life's IPO in which its promoters — SBI and European insurance major Cardiff — are together selling 12% stake. This could value the life insurer at more than Rs 50,000 crore (close to $8 billion).

In October 2010, PSU major Coal India had mobilised Rs 15,400 crore through its IPO, which is still the largest such offer in the country. Prior to that, Reliance Power had mobilised about Rs 11,700 crore when it went public in January 2008. Once listed, SBI Life would be the second listed life insurer in India. Last September, ICICI Prudential Life went public through a Rs 6,057-crore offer.

SBI Life is expected to hire Axis Bank, ICICI Securities, Citigroup, BNP Paribas, Deutsche Bank, Kotak, SBI Capital Markets and JM Financial to handle the offer.

Given that SBI Life is not seeking to raise fresh capital, the IPO will comprise an offer for sale of shares from SBI and Cardiff. The executive committee of the board approved a decision whereby SBI will divest around 8% of its holding, while Cardiff will sell around 4%.

In December 2016, the bank had sold a 3.9% stake in the insurance company to private equity firm KKR and Singapore's Temasek Holdings for Rs 1,800 crore, valuing the life insurer at Rs 46,000 crore. Following the stake sale to the private equity investors, SBI holds 70.1% while BNP Paribas holds 26%.

The private life insurer had posted a net profit of Rs 955 crore for FY17 — a jump of 11% over Rs 861 crore in FY16. According to numbers released by IRDAI, SBI Life has reported new business premium of Rs 10,145 crore for FY17 — up 42% from Rs 7,106 crore in the corresponding period of the previous year. This gives the company a market share of 20% among private life insurers and a 6% overall share.

Since BNP Paribas has not exercised its option to increase stake, the headroom available for foreign shareholders can now be used to market the issue to foreign institutional investors. The company is even better placed to distribute products through the SBI group following the merger of associate banks with the parent. With all the branches now on the same core banking platform, the company is in a better position to sell group products.