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Business News/ Companies / Life insurers seek quick capital fix from PE investors after law change
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Life insurers seek quick capital fix from PE investors after law change

The funds would also help the companies boost penetration of life insurance in a country of some 1.3 billion people beyond just 3.7%

Life insurance penetration is muted in India due to relatively high costs and a lack of awareness. Photo: ThinkstockPremium
Life insurance penetration is muted in India due to relatively high costs and a lack of awareness. Photo: Thinkstock

Mumbai: Several life insurance firms are courting private equity (PE) investors to boost their capital ahead of potential initial public offerings (IPOs), which became more feasible after a new law allowing higher foreign ownership in a sector that last year was worth $50 billion.

The law, enacted last week, lets insurers including Britain’s Prudential Plc, Standard Life Plc and Canada’s Sun Life Financial raise holdings in Indian joint ventures to as much as 49% from 26%, a change that makes a public offering less likely to significantly dilute the foreign partners’ stake.

Bankers and executives, however, said the more nimble private equity firms were better placed to help raise capital in the short-term, which the companies need to get a valuation benchmark ahead of possible listings.

The funds would also help the companies boost penetration of life insurance in a country of some 1.3 billion people beyond just 3.7%. By comparison, life insurance penetration in China and Hong Kong combined is around 12%.

“If our shareholders decide that IPO is to happen in the next 12 to 15 months, then only a private equity transaction or a private equity-like transaction we might do," Amitabh Chaudhry, chief executive officer of HDFC Life, told Reuters.

The company is a joint venture between Housing Development Finance Corp Ltd and Standard Life.

Life insurance penetration is muted in India due to relatively high costs and a lack of awareness. Insurers are now betting on a rapidly expanding, wealthier middle class and the easing of the foreign investment limits to boost profitability.

Consultants BCG said they expect India’s life insurance market to rank among the world’s top three by 2020.

State Bank of India, the majority owner of SBI Life, has said it was in talks with investors about selling stakes in its insurance units. It gave no details.

Bankers said ICICI Prudential Life, a joint venture between ICICI Bank Ltd and Prudential, is also in talks with investors including Singapore’s Temasek Holdings Pte.

Carlyle and Singapore’s GIC Pte Ltd are also interested in the sector, the bankers added.

ICICI Prudential did not respond to a request for comment. Temasek declined to comment. Spokeswomen for Carlyle and GIC also declined to comment.

“You won’t see foreign partners raising stake to 49% in all the companies," said the India M&A head at an European bank, who declined to be named as he was not authorized to speak to the media. “This will give some headroom to bring in an additional foreign investor at a better valuation ahead an IPO." Reuters

Devidutta Tripathy in Mumbai and Anshuman Daga in Singapore contributed to this story.

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Published: 16 Mar 2015, 05:56 PM IST
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