Insurance IPOs doubtful till hike in FDI limit

Listing plans of life insurance companies may take longer, with the delay in raising the foreign direct investment (FDI) cap to 49 per cent from the present 26 per cent.
According to a study by HSBC, insurance companies may not go for an initial public offer (IPO) till the FDI limit was raised
“Political winds have changed in recent weeks and the FDI limit increase was not tabled in the monsoon session of Parliament as expected. Indian insurance IPOs are unlikely until the FDI limit is raised, as the foreign partner understandably prefers to raise their stake ‘off market’ first,” the report said.
At present, insurance companies may list only after completing 10 years of operation. HDFC Standard Life will be the first since the sector was opened to complete 10 years, this October, while ICICI Prudential will do so in November. Birla Sun Life will be eligible to tap the public market in January and SBI Life, promoted by the country’s largest bank, can do so by March.
“We do not see the current grey requirement of a 10-year track record as an immovable object… The vast majority of insurers we met seemed keen to do an IPO once regulations permit, owing to a desire to raise capital and/or establish a price discovery mechanism,” the report said.
Foreign partners are interested in increasing their stake from 26 per cent to 49 per cent once the FDI limit is raised. “Then, both the local promoter and the foreign partner would sell down equally in any IPO to meet Sebi’s (the regulator) recently introduced 25 per cent minimum free float,” the report said.
While most insurance companies have agreed to a fair market price at which foreign partners can increase their stake, Allianz has set a price with Bajaj to raise its stake.
Valuations, however, will be subject to negotiation, with each partner appointing an investment bank to hammer out the deal. Most Indian insurers have not disclosed their embedded value (EV) or the valuation of a company in the absence of a standard industry norm. Three insurers — HDFC Standard Life, Max New York Life and Birla Sun Life — have disclosed their EV.