Ashok Bhattacharjee, Bloomberg
New Delhi: Allianz SE, Europe’s biggest insurer, can increase its holdings in two ventures with Bajaj Auto Ltd in India, where the state is considering a proposal to raise the cap on overseas ownership of insurance.
Allianz, based in Munich, has partnered Bajaj Auto in ventures for general and life insurance and has the option to raise its equity in both companies to 50% from 26%, Bajaj Auto said in a statement to the Bombay Stock Exchange today.
The disclosure accompanied a separation plan Bajaj Auto outlined today to split its insurance and services and automobiles businesses.
Overseas companies are allowed to own a maximum 26% of insurance companies in India, which unshackled the industry from state control seven years ago as part of a phased liberalization of the financial services business.
A federal proposal to raise the ownership limit to 49% has run into political headwinds, with communists and unions lobbying against higher ownership.
The pricing formula, which Allianz and Bajaj Auto have worked out for the German company to exercise its call option for raising its holdings, may have had a bearing on the Indian company’s business separation.
Allianz’s right to increase ownership at a nominal price may mean that Sanjiv Bajaj, Bajaj Auto’s finance director and tipped to inherit the finance businesses, will need to be compensated for the lower value assigned to Bajaj’s holdings in insurance, the Economic Times reported on 14 May.
Bajaj Allianz General Insurance’s gross written premium rose to Rs12.84 billion ($315 million) in the fiscal year to 31 March, up from Rs1.42 billion in the year to 31 March 2002. Return on equity, yielding a loss of 9% in the first of operations in 2001, climbed to 23% in the year to March 2006, according to the company’s Web site.