The government could realize close to Rs 3,000 crore by divesting a mere 10% stake in non-life insurance companies because the value of real estate they hold is worth almost the total value of their business.
The government has conducted a valuation of the four companies. And, although their financials are not in the best of shape thanks to motor insurance losses, they have a market value of over Rs 30,000 crore because of investments in financial securities and real estate, both of which are currently at historic peaks.
TOI reported on November 7 that the government is considering a disinvestment in the four state-owned non-life companies -New India Assurance, National Insurance, Oriental Insurance and United India. The process is expected to kick off with the divestment of New India.
The non-life business in the country is going through a rough patch as all insurance companies have to make huge provisions for losses arising out of motor-third party claims (claims from accident victims) after an audit by the regulator showed the earlier provisions were grossly inadequate. But despite the poor state of business the companies hold value because of real estate assets.
New India Assurance, for instance, owns several properties in Mumbai which would be currently valued at several thousand crore. The properties include its head office in Fort, another New India Centre building housing its regional office besides blocks of residential apartments at Malabar Hill and Andheri. Similarly, the three other companies-National Insurance, United India and Oriental Insurance-have substantial properties in Kolkata, Chennai and Delhi, respectively, where they are headquartered.
According to consultants, a listing would bring in a host of benefits to the four companies. "It will bring a new order of governance into the companies. They will have a broad-based board and be accountable to a larger shareholder group," said Ernst & Young's national leader (global financial services) Ashvin Parekh.
According to Monish Shah, director at Deloitte Consulting, while pricing will be determined by timing of the offering, price is only one of the factors for an IPO as divestment is a business positive in the long term and will add to their valuation. "Listing will bring to the company more efficiency in terms of better market practices and better cost management."
Insiders say that the non-life industry today is like what the banking business was in the '80s, when there was very little product innovation with focus more on top line. The underwriting margins of the companies have continued to be under pressure and have not yet stabilized as senior management attempts to prove themselves by achieving topline growth at the cost of profits.
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