HDFC, Max Financial in talks to merge life insurance business

Housing Development Finance Corporation Ltd and Max Financial Services Ltd have agreed to discuss a possible merger of their life insurance businesses in a development that could create India’s largest private-sector life insurer.

The two companies said in stock-exchange filings that they have entered into a confidentiality and exclusivity agreement to evaluate the potential merger of HDFC Standard Life Insurance Company Ltd, Max Life Insurance Company Ltd and Max Financial. They didn’t give any other details.

HDFC Life is a joint venture between the Indian mortgage lender and the UK-based Standard Life Plc. HDFC holds 61.65% and Standard Life 35% of the insurer; minority shareholders hold the remaining. It had total assets under management (AUM) of Rs 74,247 crore as of 31 March 2016 and recorded first-year premium income of Rs 6,488 crore for 2015-16.

Max Financial is India’s first listed company focused on life insurance. It owns 68.01% of Max Life while Japan's Mitsui Sumitomo Insurance Co. holds 25% and Axis Bank the remaining 5.99%. Max Life had total AUM of Rs 35,824 crore as of 31 March 2016 and first-year premium income of Rs 2,882 crore for 2015-16.

The merger, if it goes through, will be the first among life insurers in more than a decade. India’s crowded life insurance industry has 24 insurers and the sector is dominated by state-run Life Insurance Corporation.

A combination would make the merged entity India’s largest life insurer in the private sector. SBI Life, a joint venture of State Bank of India and BNP Paribas, and ICICI Prudential Life Insurance are the top two private-sector life insurers by premium income while HDFC Standard is ranked third.

Listing, valuation

A possible deal could also mean a reverse listing for HDFC Life, through either a merger with the Max Financial arm or a separate listing with Max Financial becoming a stakeholder. HDFC had in April stated its intent to take its life insurance unit public by selling a 10% stake through an initial public offering (IPO).

Separate emailed queries to Max Life and HDFC Standard Life seeking information regarding the possible structure of a deal did not elicit any response by the time of filing this article.

HDFC Life was valued at Rs 18,945 crore when Standard Life recently increased its stake in the insurer to 35% from 26%. Max Life was valued at Rs 1,919 crore when Axis Bank recently increased its stake in the company to 5.99% from 1%.

Max Financial has a market value of Rs 12,600 crore, after its shares jumped 10% following the announcement of the merger discussions. The shares surged as high as 20% in intraday trade, before paring the gains.

Max Financial is backed by private equity giant KKR and Goldman Sachs. KKR picked up a 9.95% stake in the company in February for about Rs 950 crore. Goldman Sachs owns around 15.5% of Max Financial.

ICICI Prudential Life is also looking to float its IPO and recently hired bankers to manage the offering that could raise as much as Rs 6,000 crore. The insurer is backed by Singapore state investment arm Temasek, which acquired a 2% stake late last year in a deal that valued the insurer at Rs 32,500 crore. This transaction also included PremjiInvest, the private investment arm of Wipro chief Azim Premji, buying a 4% stake in ICICI Prudential.

PremjiInvest also owns about a 1% stake in HDFC Standard Life that it bought in December 2014 for around Rs 200 crore.

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