Private-sector lender Axis Bank will buy a smaller stake than previously planned in Max Life Insurance Company Ltd in an effort to secure regulatory approvals for the deal.
The bank will now purchase a 17% stake in Max Life compared with 29% proposed in April, it said in a stock-exchange filing.
Axis Bank, which already holds a small stake in Max Life, will own an 18% stake in the insurer when the deal closes.
The bank and Max Financial Services Ltd, the parent of Max Life, didn’t specify a reason for lowering the deal size. They also didn’t reveal the financial terms of the revised deal.
However, the companies tweaked the deal after the insurance regulator objected to certain clauses of the transaction.
Axis Bank had first invested in Max Life a decade ago. Its plan to take a bigger stake in the insurer was aimed at beefing up its presence in the insurance industry.
Max Financial currently holds a 72.5% stake in Max Life while Japan’s Mitsui Sumitomo Insurance owns 25.5%. The Japanese company would swap its stake in the insurer with a stake in Max Financial.
As per the deal originally announced in April, Max Financial was to own 70% of the insurer after the transaction was completed. It isn’t clear if Max Financial would now rope in another investor or whether Mitsui would retain some stake.
As per the original deal, Max Financial and Axis Bank had agreed to list Max Life in a few years’ time through a merger with Max Financial. If this couldn’t go through, then Axis Bank’s stake in Max Life would be swapped with a stake in Max Financial. In case the first two options were not consummated within 63 months from the closing of the deal, Axis Bank had a put option to sell all shares in Max Life at Rs 294 apiece apiece.
It isn’t clear if the revised deal changes the put option that would give a huge upside to Axis Bank.
Section 35 of the Insurance Act only permits mergers between insurance companies. In 2017, Max Financial had called off a proposed merger of Max Life with HDFC Standard Life Insurance Company Ltd for a similar reason.
Max Life is the largest non-bank life insurance company in India and the fourth-largest in the Indian private sector overall. However, not having a bank promoter has not been revenue-positive for the firm as banks have overtaken insurers as the biggest distributors for policies.
VCCircle previously reported that some of the benefits from the deal could include higher sales projections and fee income benefits for Axis Bank as well as the ability to cross-sell the lender’s loans and other retail products to Max Life customers.