Companies
Kotak will expand general insurance business with proceeds of Zurich deal: CFO
Summary
- With our distribution network and brand and their global expertise we can create a much larger entity, said Jaimin Bhatt
Mumbai: The Kotak Group has sold a 51% stake in its non-life insurance company to Europe’s leading insurance firm Zurich Insurance Group for about ₹4,000 crore. In an interview with Mint, Jaimin Bhatt, chief financial officer of the Kotak Group, talked about the strategy behind the sale and the valuation the business is seeking. Edited excerpts:
What is the strategy behind the stake sale and bringing in a strategic partner? Is it to unlock value?
We as a group keep looking for how we can add value in a variety of businesses that we are in. This (non-life insurance) is a business which we have brought to a stage where we have created value in the company. But we also believe that to take it to the next level, when there is a huge opportunity, it would help to get into an alliance with somebody who's global. With our distribution network and brand and their global expertise, we can create a much larger entity.
What is the break-up of the primary and the secondary sale?
The exact number of how much is primary and how much is secondary will be determined only at close (of the transaction). We don't know the exact numbers right now, but it will be roughly ₹4,000 crore. Primary infusion is expected to be around ₹1,600 crore. As of now, the company is valued at approximately ₹6,300 crore pre-money.
What will the ₹4,000 crore be used for?
The primary money will obviously be used to scale up the company. As you may know, the general insurance company has been loss-making. General insurance companies generally have a negative P&L in the initial years. We believe this growth capital will help the company scale up decently from where it is today.
What we will get through secondary is honestly small. We have a consolidated level capital of about ₹1.20 lakh crore. This should bring maybe about ₹1,600 crore to ₹1,700 crore post-tax. It will be used to grow our existing businesses.
It was not the capital that drove the deal, as I said. The consideration here is how do we create value in the general-insurance business and make it much larger than it is today.
You are likely to sell 19% more to Zurich to bring the total stake sale to 70%. At a time when many of your peers are increasing their stake in insurance, why are you selling?
Under the Banking Regulation Act, if we hold a 49% stake in an entity we cannot stay at these shareholding levels. We either have to go beyond the 50% mark or go to 30%. At some stage, we will have to go from 49% down to 30% based on regulatory approvals.
Will you look at exiting the business at some point in time?
No, not at all. There's no intent at all.
