Kotak Mahindra to buy out Old Mutual from insurance JV for $201 mn

Kotak Mahindra Bank Ltd has agreed to acquire British partner Old Mutual plc’s 26% stake in their life insurance joint venture for Rs 1,292.7 crore ($201 million) in cash.

The deal will increase Kotak Mahindra Bank’s stake in Kotak Mahindra Old Mutual Life Insurance Ltd to 100%, the private-sector bank said in a stock-exchange filing on Friday.

The transaction is subject to regulatory approvals and is likely to complete in the second half of 2017.

Old Mutual said in a separate statement that the net consideration after tax will be about Rs 1,170 crore. The company will use the proceeds for general corporate purposes.

Rothschild acted as financial adviser to Old Mutual for the transaction.

Kotak Mahindra, India’s fourth-largest private-sector lender, had established the insurance joint venture with London- and Johannesburg-listed Old Mutual in 2001.

India’s crowded life insurance industry has 24 companies and is dominated by state-run Life Insurance Corp. SBI Life Insurance Co., a joint venture of State Bank of India and BNP Paribas; ICICI Prudential Life Insurance Co. Ltd and HDFC Life Insurance are the top private-sector life insurers by premium income.

India’s insurance sector has seen deal-making rise after parliament passed the Insurance Laws (Amendment) Bill in 2015 to lift the foreign investment cap in private-sector insurers to 49% from 26%.

Since the rule change many foreign investors have increased their stake in Indian joint ventures.

These include Japan’s Dai-ichi Life Insurance Company Ltd and Nippon Life, Canada’s Sun Life Financial Inc, British insurers Bupa Plc and Aviva Plc and French firm AXA. However, there have been few cases of local companies buying out their overseas partners, with the Kotak deal being a prime example.

Kotak Mahindra Group is a diversified financial services conglomerate with businesses such as asset management, insurance, investment banking, private equity and stock broking. Its decision to buy Old Mutual’s stake follows a board decision last month to raise as much as $825 million by selling shares.

The fundraising is aimed at reducing founder Uday Kotak’s stake in the bank and augmenting the lender’s capital base to pursue mergers and acquisitions, acquire stressed banking assets, grow subsidiaries, and expand its digital banking and international lending operations, it said at the time.

Kotak Mahindra Bank is no stranger to mergers and acquisitions. It had, in November 2014, acquired peer ING Vysya Bank in an all-stock deal worth $2.4 billion.

Shares of Kotak Mahindra Bank were down 1.25% at Rs 903.10 apiece on the BSE midway through Friday’s trading session, after touching a 52-week high of Rs 922 earlier in the session.

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