India life insurers seek quick capital fix from PE investors after law change

Mon Mar 16, 2015 7:24am EDT
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By Sumeet Chatterjee

MUMBAI, March 16 (Reuters) - Several Indian life insurance firms are courting private equity investors to boost their capital ahead of potential IPOs, which became more feasible after a new law allowing higher foreign ownership in a sector that last year was worth $50 billion.

The law, approved last week, lets insurers including Britain's Prudential PLC, Standard Life and Canada's Sun Life Financial raise holdings in Indian joint ventures to as much as 49 percent from 26 percent, a change that makes a public offering less likely to significantly dilute the foreign partners' stake.

Bankers and executives, however, said the more nimble private equity firms were better placed to help raise capital in the short-term, which the companies need to get a valuation benchmark ahead of possible listings.

The funds would also help the companies boost penetration of life insurance in a country of some 1.3 billion people beyond just 3.7 percent. By comparison, life insurance penetration in China and Hong Kong combined is around 12 percent.

"If our shareholders decide that IPO is to happen in the next 12 to 15 months, then only a private equity transaction or a private equity-like transaction we might do," Amitabh Chaudhry, CEO of HDFC Life, told Reuters.

The company is a joint venture between Housing Development Finance Corp Ltd and Standard Life.

Life insurance penetration is muted in India due to relatively high costs and a lack of awareness. Insurers are now betting on a rapidly expanding, wealthier middle class and the easing of the foreign investment limits to boost profitability.

Consultants BCG said they expect India's life insurance market to rank among the world's top three by 2020.   Continued...