Max Financial Services and Axis Bank have agreed to make changes to the value-creation options in their proposed life insurance deal after the regulator asked them to do so.
Axis Bank had signed a deal in April to hold a 30% stake in Max Life Insurance Company Ltd.
The lender, which already holds a small stake in Max Life, had said in a statement it will buy a 29% stake from Max Financial Services Ltd, the publicly listed holding company of the insurer.
Max Financial Services had said Axis Bank and itself intend to create long-term value for all shareholders of Max Life by merging the insurer with the holding company.
As part of the deal, both the entities had agreed to certain value-creation options should the merger not be completed by a pre-agreed timeline. The two had agreed to direct listing of Max Life in a few years' time through a merger with parent Max Financial Services. If this was not possible, then Axis Bank’s shareholding in Max Life would be swapped to Max Financial Services.
In case the first two options are not consummated within 63 months from the closing, as per a put option Axis Bank can sell all shares in Max Life at a price of Rs 294 apiece (subject to adjustments).
According to persons in the know, the regulator has given some observations and one of the above options will be tweaked. Nothing material has changed for the deal but the changes are for the future course after the deal has completed, they said.
Currently, billionaire Analjit Singh-led Max Financial Services holds 72.5% stake in Max Life and the parent firm does not engage in any other financial business except managing Max Life Insurance.
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.
According to persons in the know, 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.
Meanwhile, the regulator also came out yesterday with norms for transfer of shares by listed and unlisted insurance companies. In listed company transactions involving a stake in the insurance firm of more than 1% but less than 5%, the buyers’ fit and proper declaration has to be provided.
Further, apart from the seller immediately having to disclose the deal to the regulator, for transfers above 5% the seller and buyer have to take prior permission from the regulator through the insurance company. The new norms will also apply for the creation of a pledge on shares.
At the same time, the Reserve Bank of India (RBI) has in the past expressed reservations on banks cross-holding stake in allied sectors like insurance.
Max Life has been vying to get a bank as a shareholding partner for almost four to five years. Even before this deal, Axis Bank was one of the key bancassurance partners for the insurer. In fact, in absolute terms, Max Life draws the largest share from Axis Bank among its bancassurance partners and will be their corporate agent till April 2021.
In 2016, a three-way merger deal between Max Financial Services, Max Life and HDFC Life was announced. But this was called off a year later as the structure of the merger was not acceptable to the regulator.
Amitabh Chaudhry, the MD & CEO of Axis Bank now, was the head of HDFC Life when the deal was announced then.
Four years later, Max Life and its parent announced a deal with Axis Bank.