Fairfax set to sell 25% of ICICI Lombard for nearly $1 billion
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Mumbai: Fairfax Financial Holdings Ltd is in early talks to sell 25% of ICICI Lombard General Insurance Co. Ltd in a deal that could fetch up to $1 billion, as the Canadian firm looks to cash out and start a new insurance joint venture, people familiar with the matter said.
ICICI Lombard, India’s largest private-sector general insurer, is a joint venture formed in 2001 between ICICI Bank Ltd, India’s second largest bank, and Fairfax, which is led by Canadian billionaire Prem Watsa.
Fairfax, which owns a 35% stake in the venture, has seen the value of its investment surge over the past five years, as India’s general insurance market and ICICI Lombard have grown at a compounded annual rate of over 16%. Vehicle ownership in the country has surged and the market remains under-penetrated.
Reducing its stake to 10% will allow the Canadian firm to start a new general insurance joint venture in India, which it aims to do, one of the people cited above said, adding that foreign investors cannot own more than 10% of two insurance companies, as per Indian regulations.
Private equity firms including Blackstone Group and KKR and Co. Lp, as well as some Canadian pension funds have expressed interest in Fairfax’s stake, the people said on condition of anonymity. ICICI may also look to sell a 10% stake in the unit at the same time, one person said. Buyers are likely to pay a larger premium for a stake in ICICI Lombard if they are able to get as much as a third of the company, the people said.
Two of them said a deal is likely to be finalized in the next two months.
Fairfax may redeploy some of the proceeds to fund its $4.9 billion takeover of Swiss insurer Allied World, a person said.
ICICI, Fairfax, Blackstone and KKR did not respond to requests for comment.
The people cited above said discussions are in the early stages and it was not yet clear what any final deal would look like.
Fairfax has not yet chosen a bank to run a sale process, they said.
ICICI Lombard, with an 8.8% market share, is a major entity in the vehicle, home, health and travel insurance space with gross written premiums of $1.2 billion in fiscal 2016.
Fifteen months ago, ICICI Lombard was worth $2.5 billion, based on the value of a stake ICICI sold to Fairfax at the time. Now, two of the people pegged its value at about $4 billion, while a third said ICICI Lombard is worth about $3.2 billion.
The range puts the value of a 25% interest in the insurer at between $800 million and $1 billion.
Fairfax has already submitted an initial proposal to the Insurance Regulatory and Development Authority of India (Irdai) for a new general insurance joint venture and met with the regulator this week, three people said.
The Canadian firm would be more inclined to proceed with the ICICI Lombard partial stake sale if it gets a nod from Irdai to move forward on the venture, the people said.
Fairfax plans to keep a 45% stake in the new venture, which will initially focus on the travel insurance market, one of them said.
Kamesh Goyal, a former senior executive at Allianz SE, would spearhead the new venture and own a 15% stake in it with other investors buying up the rest, the person said.
The overall initial investment in the venture is likely to be $50 million, the person said.
Indian regulations allow foreign investors to own up to 49% in Indian insurers. .Reuters