Leading life insurance companies such as HDFC Life, Birla Sun Life and ICICI Prudential have shown interest in purchasing HSBC’s stake in its three-cornered JV with two public sector banks.
Two people with direct knowledge of the development said advisors to HSBC have approached the insurance companies, and the matter is under consideration. Oriental Bank of Commerce and Canara Bank, HSBC’s partners in the joint venture, have not yet decided whether to sell or not, and they may take a call depending upon the price being offered by the bidders.
An HDFC Life spokesperson declined comment. A Birla Sun Life official and a senior executive from ICICI Prudential confirmed their interest in the insurance venture while an ICICI Prudential spokesperson declined comment.
Canara HSBC OBC Life insurance CEO John Holden did not respond to calls and messages.
A regulatory cap on Ulips in 2010 stopped the industry’s growth in its tracks while problems in their respective home countries in the past two years led to the exit of ING and New York Life.
Though the industry profits have been rising, growth in new coverage has been subdued as companies preferred to consolidate. New income for life companies fell 2.69 per cent in the first nine months of this financial year.
Canara HSBC OBC’s income from sale of new policies fell 17.94 per cent in the first nine months to Rs 391 crore. The firm is ranked 19th in terms of new business income out of 24 life insurance companies, with a market share of 0.56 per cent.
HSBC will be the third foreign major to exit the market, but its decision has little to do with the domestic industry’s stagnant growth. The British giant had decided to get out of the insurance business globally some time ago. The bank owns 26 per cent in the Indian venture, with Canara Bank holding 51 per cent and Oriental Bank of Commerce 23 per cent.
Ernst & Young is advising the seller while HDFC Life, jointly promoted by India’s largest lender HDFC Bank and British life insurer Standard Life Plc, has appointed investment banker Credit Suisse.
The main attraction for the buyer is the 6,000-strong branch network of OBC and Canara Bank. A person close to the discussions said the two banks could exit along with HSBC if the price is right, and strike a separate bancassurance agreement with the buyer.
A number of insurance players have preferred to tie up with public sector banks through bancassurance deals, attracted by their huge branch network that penetrates into the remotest towns and villages. The banks could also remain in the venture as partners, though that could be difficult if the buyer is an Indian firm.
Indian laws cap foreign stake in insurance ventures at 26 per cent so a foreign buyer can find a willing partner in these two companies.
The joint venture has a paid-up capital of Rs 950 crore and HSBC is believed to be expecting at least the return of its capital.
The last major deal in the insurance business was Exide’s buyout of a 50 per cent stake in ING Life Insurance for about Rs 550 crore, valuing the company at about Rs 1,100 crore, nearly one time its annual revenue.
http://articles.economictimes.indiatimes.com/2013-02-15/news/37119475_1_canara-hsbc-obc-life-ceo-john-holden-hdfc-life
