New Delhi:

Max India Ltd said on Tuesday that it will split into three separate units—life insurance; health and allied businesses; and manufacturing—in a restructuring exercise aimed at unlocking shareholder value in its key businesses.

Max India will be renamed Max Financial Services Ltd and will focus solely on the life insurance business—a joint venture with Mitsui Sumitomo Insurance Co. Ltd.

A second unit will oversee the health and related businesses, including Max Bupa Health Insurance, in which Max India has a 74% stake and Bupa Finance Plc. of the UK 26%.

The third unit will manage its speciality packaging films business, Max India said.

Max will also sell its clinical research business to Canadian company JSS Medical Research Inc. for $1.5 million as part of the restructuring.

Analysts welcomed the move as positive for both Max India and its shareholders. Max India shares rose 8.4% to a seven-year high of 492.75 on a day the BSE’s benchmark Sensex gained 1.16% to a record 29,618.59 points.

“The restructuring is a positive move both for the company as well as the investors. It will help investors to invest in the business vertical they are interested in," said Daljeet S. Kohli, head of research at IndiaNivesh Securities.

“As it is, the life insurance and the healthcare business have no synergy between them," he added. “It will also make it easier to bring in strategic investors and raise capital across the verticals. It will improve the valuations..."

The restructuring follows the government’s decision to raise the foreign investment limit in insurance joint ventures to 49% from 26%. The demerger and listing of Max Financial Services will, in effect, offer investors their first opportunity to play on a company focused exclusively on insurance.

This “would be more or less surrogate listing of our life insurance business", Max India chairman Analjit Singh said, adding that the revamp would leave a “very cleaned up structure of Max India Group".

Max India expects the increase in the cap on foreign direct investment in the insurance sector to prompt renewed investors’ interest in the sector.

Singh said the company’s agreement with Sumitomo Mitsui does not have any clause that required it to offer the foreign partner a higher stake in the insurance joint venture with the easing of regulations.

The company is open to all three options when it comes to its life insurance business—bringing in strategic investors or foreign institutional investors or allowing Sumitomo to raise its stake once the insurance ordinance issued by the government is ratified by Parliament.

The second firm will be called Max India, which will oversee Max Bupa as well as Max Healthcare and Antara Senior Living, a developer of premium apartments for senior citizens. This entity will get the bulk of the existing venture’s cash balance.

The third company will be called Max Ventures and Industries Ltd and will house the investment activity of the group’s manufacturing subsidiary called Max Speciality Films Ltd. Singh said the industrial arm that has been created as a result will not “shy away" from entering manufacturing and leveraging the ‘Make in India’ push of the new government.

Singh will make an open offer for buying up to an additional 34.5% stake in Max Ventures and Industries that could increase his stake to upto 75%.

Existing shareholders will get shares in all the three new entities after the split.

They will get one share with a face value of 2 each in Max Financial Services and Max India for every share of 2 held. In addition they will get one equity share of 10 each in Max Ventures and Industries for every 5 equity shares of 2 each held.

The company hopes to list its three units by September this year after it receives necessary clearances from the courts and regulators, including the Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and the Competition Commission of India.

Max India currently has cash reserves of 605 crore which will be split between the three entities with more than 400 crore going to the healthcare and health insurance verticals.

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