Mumbai: Max Life Insurance Co. Ltd has emerged as the leading candidate to buy out or pick up a majority stake in IDBI Federal Life Insurance Co. Ltd, said two people directly aware of ongoing talks.
IDBI Federal Life is valued at around Rs6,000 crore, said one of the two people, adding that Max is more likely to buy a 51% stake in the firm. The person declined to be identified.
In 2017, Analjit Singh-promoted Max Life’s proposed merger with HDFC Standard Life Insurance Co. Ltd collapsed after failing to win regulatory approval for a union that would have created an insurance giant with Rs1.1 trillion in assets.
“All options are being looked at,” said the person. “If a foreign insurer comes, it can’t pick up more than 49%, which will mean that the existing foreign partner will have to go and the existing domestic partners will have to dilute part of their stakes. If an Indian insurer comes, it will have the option to pick up the entire stake in the company.”
IDBI Bank Ltd holds a 48% stake in IDBI Federal Life while Federal Bank Ltd and Belgian life insurer Ageas SA/NV hold 26% each.
Tata AIA Life Insurance Co. Ltd, Kotak Mahindra Life Insurance Co. Ltd, Aditya Birla Sun Life Insurance Co. Ltd and Exide Life Insurance Co. Ltd have also shown interest in buying IDBI Federal Life’s insurance assets in India.
An IDBI Federal Life spokesperson said the firm does not comment on speculation. Max Life declined to comment. Spokespersons from Tata AIA Life and Aditya Birla Sun Life said they would not comment on speculation in response to emails from Mint.
“JPMorgan has been appointed as the banker from IDBI Federal’s side to advise on the potential deal. It is desired to close the deal before 31 March to save on taxes,” said the second of the two people cited earlier.
A JPMorgan spokesperson declined to comment.
An increase in foreign investment limit in insurance firms has triggered a consolidation in the sector since 2015. A number of local life insurers saw their foreign joint venture partners raising stakes and strengthening the insurer’s capital for expanding its network and launching more products. Businesses of bank-promoted life insurers, which predominantly use the bancassurance channel to sell products, are more in demand because of their ability to save on distribution costs.
“If Max Life comes, the biggest benefit will be in terms of distribution costs. Max has a tie-up with Axis Bank, and IDBI Federal Life, too, has a banking channel. Max Life doesn’t have a parent bank that works as a bancassurance channel. But Axis Bank, through Maxis platform, is doing very well in terms of selling Max Life products. IDBI Federal Life’s products will be benefited in a similar fashion while Max Life’s products will get a bigger bancassurance channel too, through IDBI Bank and Federal Bank,” said the first person.
On Friday, Max Financial Services Ltd said it will raise Rs5,000 crore to invest in subsidiary Max Life Insurance, either through a preferential issue or a qualified institutional placement, for funding acquisitions.
IDBI Federal Life has been valued at around Rs6,000 crore, basis its embedded value of close to Rs2,000 crore, said the person. Embedded value represents the sum of the present value of all future profits from the existing business and shareholders’ equity. Listed firms such as HDFC Standard Life and ICICI Prudential Life Insurance Co. Ltd are trading at 6.3 times and 4.1 times their embedded value, respectively.
“IDBI Federal is a relatively newer player with modest returns,” said the first person.