L&T Finance to buy out Pantaloon in non-life JV with Generali Group

MUMBAI: L&T Finance Holdings, the financial services arm of L&T, will buy out Future Group company Pantaloon’s majority holding in the general insurance JV with Generali Group of Italy for Rs 500 crore. The insurance firm will be merged with L&T’s wholly-owned subsidiary L&T General insurance once the transaction is completed. The all-cash deal, which is subject to regulatory approvals, will give L&T 51% stake in the merged entity with Generali and the Kishore Biyani-led Future group holding 26% and 23%, respectively.

L&T officials said that the insurance firm will be renamed at an appropriate time. Generali’s stake at 26% is the highest permissible foreign holding in an insurance company. Future and L&T were in discussion for close to nine months. ET had first reported the deal on July 31, 2012. The stake sale will help Future Group pare its debt. A slice of the debt has already been lowered through similar deals by Future in other group companies. Afew weeks ago, Future decided to sell 22.5% stake in life JV with Generali to Industrial Investment Trust Limited for Rs 250-300 crore.

Last year, it had sold its majority stake in Future Capital to private equity firm Warburg Pincus. Non-life companies usually take 5-6 years to break-even. But stiff competition, generous discounts and higher provisioning rules have upset the arithmetic. Promoters of non-life insurance companies will have to chip in extra capital towards increased provisions for third-party motor insurance, a loss-making product that insurers have to offer as per regulatory requirement.

Premium income of Future Generali General Insurance for April-January 2013 rose 21.3% to Rs 928 crore from Rs 764 crore the year-ago period. As on December 31, the firm’s share capital was Rs 645 crore while it suffered a loss of Rs 34 crore for the December quarter .