Nippon Life has the same opinion to 5-yr lock-in

Japanese insurer Nippon Life has agreed to lock-in investment for 26 (%) stakes in Reliance Life Insurance for a period of 5 years.

In return for the stake, the company will get one permanent board seat and will also get to recommend one independent director for thought on the board. The Japanese insurer has gone in front with the transaction even after the earthquake tragedy. Both the partners have now submitted their proposal to the Insurance Regulatory and Development Authority.

Interestingly, although there is government proposal to increase foreign direct investment in insurance to 49(%) there is no clause providing for a higher stake. Both the partners have decided that if higher FDI is indeed allowed they will commence discussions afresh in good faith. If Nippon Life does not increase its stake Reliance Life can bring in a financial investor or sell shares through an initial public offering.

Last week, Reliance Capital signed an ultimate agreement with Nippon Life to sell a 26(%) stake in Reliance Life Insurance for Rs 3,062 crore ($680m). This transaction pegs the total valuation of Reliance Life Insurance at approximately Rs 11,500 crore ($ 2.6 bn). Following the deal Bank of America Merrill Lynch in a research report said "The deal values R-Life at $2.6bn, which is over 60% higher than our estimates. RCap has invested around Rs3100cr till date in the life insurance venture. We maintain our life insurance business value at around Rs 7000 crore (Rs286/share), as we would like to still see improved operational performance across the sector currently experiencing regulatory headwinds".

In another report, Ambit said, "The management said that its a compulsory transaction for both the parties and only awaits regulatory approval from IRDA, RBI and Japanese Insurance regulator which management thinks might take anywhere from 1 to 3 months."