Mitsui Sumitomo to buy 26% stake in Max New York

New Delhi: Japan’s Mitsui Sumitomo Insurance Co. Ltd said it will purchase a 26% stake in Max New York Life Insurance Co., a joint venture between Max India Ltd and US-based New York Life Insurance Co., for Rs2,731 crore in an all-cash transaction.

The transaction values Max New York Life at more than Rs10,500 crore and is the second largest foreign direct investment (FDI) in the Indian life insurance industry.

The deal, which is subject to regulatory approval from the Insurance Regulatory and Development Authority, or Irda, will lead to the exit of New York Life from the Indian joint venture, in line with its strategy to withdraw from Asia and focus on its core markets of the US and Mexico.

In a two-part transaction structured to give tax benefits, Mitsui Sumitomo will buy a 9.37% stake from Max India and another 16.63% from New York Life International Holdings Ltd, Max India told BSE Ltd on Thursday. The remaining shareholding of 9.37% held by New York Life International in Max New York Life will be purchased by Max India to ensure that foreign holding does not cross the stipulated 26%.

Max India’s stake will remain at 70% in the life insurer after the two transactions are completed. Axis Bank Ltd holds the remaining 4% stake in the company.

Of the total Rs2,731 crore paid by Mitsui Sumitomo, Max Group will get Rs879 crore to reflect the overall value added by Max India to the insurance joint venture, said Analjit Singh, chairman of Max India. “These funds will be used to grow the life insurance and other businesses of the group,” he said.

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Singh also hinted that the group may be open to acquisition opportunities in the life and non-life space. “If the opportunity presents out of the likely consolidation in life and non-life business, possibly we will participate in that.”

The shares of Max India rose 8.34% on Thursday to close at 203.95 on BSE.

“The recent regulatory changes in the Indian life insurance industry, along with the delay in raising the FDI cap, has created a dampening effect in the short term with companies seeing a shrinkage in growth of new business premium and muted profits,” said Alpesh Shah, partner and director at Boston Consulting Group. “But, in the medium- to long-term, the Indian market continues to be attractive due to the sheer size though not as much as it seemed two years back.”

Max New York Life, India’s fourth largest private life insurer with a market share of 8.6% among private firms, will be rebranded Max Life Insurance Co. The company has a paid-up capital of Rs2,126 crore and had posted a profit of Rs572 crore in the nine months ended December 2011. It currently has more than Rs16, 836 crore of assets under management.

“We owned our shares through a Mauritius holding company; and under Mauritius tax treaty, we do not believe there will be any tax payable in India,” said Michael Sproule, chief financial officer of New York Life Insurance. “But in order to avoid any penalties, we are going to be withholding full tax and then we are going to file for a refund with Indian tax authorities.”

Mitsui Sumitomo Insurance, a unit of MS&AD Insurance Group, is expanding in Asia. “Mitsui Sumitomo Insurance has a huge foundation and customer base in the Asian region for general insurance business and we have accumulated experience in joint ventures. We have been trying to leverage the foundation and the experience to develop large insurance business in India,” said Yasuyoshi Karasawa, president and chief executive of Mitsui Sumitomo Insurance. “Currently, Mitsui Sumitomo Insurance is participating in management of joint ventures with life insurance companies in Thailand, China, Malaysia and Indonesia. India will be the fifth country,” he said.

Analysts point out that the recent foreign entrants into India have been from Japan. “It is mainly because the home country is in a tight spot. Also, most of the Japanese companies have been late in expanding abroad.” said Ravi Trivedy, an independent insurance consultant. “Most companies from other markets will wait for liberalization of FDI norms.”

remya.n@livemint.com