BCCL buys out Religare’s 44% stake in life insurance JV

New Delhi: Bennett Coleman and Co. Ltd (BCCL), the publisher of English daily The Times of India, will buy Religare Enterprises Ltd’s entire 44% stake in life insurance joint venture Aegon Religare Life Insurance Co. Ltd, while foreign partner Aegon will increase its stake from 26% to 49%.

The transaction, once completed, will mark the exit of Religare from the life insurance business in India. On 25 September last year, Religare had announced its intent to exit the life insurance venture.

During the first nine months of the previous fiscal, Aegon Religare collected a first-year premium of Rs.107.45 crore from its life insurance business in India, one of the lowest in the industry, according to data compiled by the Insurance Regulatory and Development Authority of India (Irda).

In a filing to the stock exchanges on Tuesday, Religare said the transaction is subject to regulatory approvals from the Competition Commission of India (CCI), Foreign Investment Promotion Board (FIPB) and Irda.

The latest deal, once approved, will mark the first time a media company has become the majority owner in a life insurance company in India.

“I am not aware of any media company as the majority shareholder in a life insurance firm in the world. This will be the first time, probably. But that does not matter much. In the past 15 years, many companies from diversified businesses have come forward to form insurance joint ventures in India, and they have been reasonably successful. So, whether it is Religare or BCCL as the joint venture partner, it would not matter much from the point of insurance business as a whole. And, considering the Indian scenario and the economic prospects, insurance has a huge growth potential in a country like India,” said Sanket Kawatkar, principal life insurance practice leader, India, at Washington-headquartered global consultancy firm Milliman Inc.

At present, there are 24 life insurers in India, which collected a total first-year premium of Rs.73,777.37 crore till December during the last fiscal year, according to Irda.

Although, the cap on foreign direct investment (FDI) in insurance has recently been raised from 26% to 49%, the life insurance industry in India has witnessed a slowdown in sales over the past few years due to a series of tightening of norms by the insurance regulator, starting with stricter rules for insurers to sell unit-linked insurance products (Ulips) in 2010.

“I feel rather than forcing the life insurance industry to change the basic structure of insurance products as per the tighter regulatory framework, the Indian regulator should have tackled the way insurance products have been traditionally distributed. The problem was not with the products, but the way the products were being sold. So, in order to improve the penetration of insurance and develop the industry, the regulator should look at ways to bring in certain feasible norms, while putting in place appropriate distribution norms to curb the chances of mis-selling,” Kawatkar added.

As far as Religare is concerned, Mint reported on 4 May that Malvinder Singh and Shivinder Singh, the promoters of Religare Enterprises, have put their stake in the financial services group up for sale.

The promoters own a 50.93% stake in Religare Enterprises, which is the holding company for all its financial services businesses and include insurance, alternative asset management, small and medium enterprise finance and capital markets and wealth management units.

According to a 4 May report by The Economic Times, companies such as Bain Capital, Baring Private Equity Asia and Renuka Ramnath’s Multiples are among the five or six potential suitors who have bid for the assets held by Religare Enterprises in these businesses.

The current market capitalization of Religare is about Rs.6,500 crore. Going by the current trading price of Religare Enterprises, a 51% stake sale by Religare Enterprises may generate at least Rs.3,200 crore. The Washington-based International Finance Corporation, the private sector lending arm of the World Bank, has held a near 8% stake since 2013 in Religare Enterprises, its largest exposure in Asia, pursuant to the conversion of debentures into equity shares.

According to a presentation on 3 February, the firm generates 48% of its revenue from its lending business, 11% each from capital markets and wealth management and insurance businesses and the rest from asset management.

For the quarter to December, Religare Enterprises reported a consolidated net profit of Rs.93.3 crore, compared with a loss of Rs.23.6 crore in the same quarter in 2013. Consolidated revenue was Rs.1,133 crore in the December quarter against Rs.893.5 crore in the same quarter the previous year. The firm is yet to release its earnings for the March quarter.

In 2012, the firm raised money from private equity investor Jacob Ballas Capital India Pvt. Ltd and Avigo Capital. Jacob Ballas had invested Rs.200 crore and Avigo Capital paid Rs.150 crore to acquire a stake in the firm.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.