Insurance and healthcare major Max India may divest around 5% in its life insurance joint venture with Mitsui Sumitomo Insurance – Â Max Life Insurance – to long-term foreign financial investors if parliament approves the proposed hike in insurance FDI cap to 49%.
Unlike many other insurance joint ventures in India where foreign partners have the right to increase their stakes at a pre-determined  price, Max India has not made any such commitment to its new partner Mitsui Sumitomo Insurance of Japan. Mitsui became a partner  in Max Life Insurance in April this year, buying out the stake of US-based New York Life Insurance.
“Max India is under no obligation to divest additional stake to the existing joint venture partner. If we were to divest any stake, it would purely be a commercial decision to unlock the valuation from our life insurance business,” said Analjit Singh, chairman of Max India and Max Life Insurance.
Last week, the Cabinet approved legislative changes to raise the foreign direct investment limit in insurance to 49% from 26%. The government is expected to seek parliament’s nod to the move in the winter session.
New York Life, the original joint venture partners since 2000 had the right to increase its holding to 49% as and when the government relaxes FDI restriction of 26%. Mitsui Sumitomo, which had acquired a 26% stake in the insurance firm for Rs 2,731 crore, however, does not have similar rights.
Besides insurance behemoths, there are many long-term financial investors such as pension funds who are willing to invest in the Indian life insurance space but could not make any headway as the current limit of 26% is completely owned by the strategic insurance investors.
The company is looking at setting a new benchmark for its valuation by financial investors. “Since Max India does not have immediate fund requirement, its expectation is much higher than the last valuation of Rs 10,500 crore for Max Life at which Mitsui had acquired 26% stake,” said another person familiar with the development.
“It is the largest non-bank promoted private life insurer today, and is widely appreciated for its agency model with a focus on selling long-term protection-oriented policies,” Singh said.
After the parliamentary approval to the proposal, companies like Max India would use the additional 23% FDI window as a lever to bolster their valuations.
