Reliance Capital Ltd. said Monday it has agreed to sell a 26% stake in its life insurance unit to Japan's Nippon Life Insurance Co. for 30.62 billion rupees ($680 million).
The news sent the shares of Reliance Capital sharply higher as analysts say a stake sale will give wholly owned unit Reliance Life Insurance Co. the funds it needs to spur growth in a capital-intensive business. In afternoon trade, Reliance Capital shares were up 7.1% at 548.5 rupees in a Mumbai market that was trading 1.2% higher.
The deal, which is subject to regulatory approvals, pegs the total valuation of Reliance Life at 115 billion rupees ($2.6 billion), Sam Ghosh, chief executive officer of Reliance Capital, told reporters.
"We will prepare the final application for approval [from the insurance regulator] today," Mr. Ghosh said.
India has 23 life insurance companies including state-run Life Insurance Corp., the largest in terms of number of policies sold. But most private insurers have been unable to turn profitable due to the high cost of acquiring new customers. The companies are also choked for funds as foreign investment into local insurers is capped at 26%.
India's parliament is yet to approve the government's proposal to raise the foreign investment limit to 49% because of stiff opposition from other political parties.
But Nippon Life hopes that entering emerging markets such as India would help boost profitability at a time when Japan's population is shrinking and its life insurance industry is seen as saturated.
Insurance companies face restrictions also on raising funds through initial public offerings. The Insurance Regulatory and Development Authority and capital markets regulator Securities and Exchange Board of India have been working on IPO guidelines for life insurers.
Reliance Life started operations in 2005 and has sold more than 7 million policies. It manages assets worth over 170 billion rupees ($3.7 billion) as of Dec. 31, 2010, according to a company statement.
Nippon Life is Japan's largest life insurer with revenue of $72 billion and a profit of $2.6 billion for the fiscal year ended March 31, 2010, it said.
Rival Dai-ichi Life Insurance Co., which listed on the Tokyo Stock Exchange in April and is actively seeking out overseas acquisitions, in December agreed to buy Tower Australia Group Ltd. Dai-ichi is present in India through a joint venture, Star Union Dai-ichi Life Insurance Co., with state-run lenders Bank of India and Union Bank of India.
[Source]
Monday, March 14, 2011
Nippon Life To Buy 26% In Reliance Life
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