Max India gets nod for Goldman investment

NEW DELHI: The government on Monday cleared a proposal by the Analjit Singh-promoted Max India to raise Rs 529 crore from the private equity arm of global investment bank Goldman Sachs through issuing convertible debentures.

The government said it has approved the Max proposal to allot fully and compulsorily convertible debentures (FCDs) to the private equity arm of Goldman Sachs through “a wholly-owned indirect subsidiary of the fund and certain affiliated funds which are controlled by the non-resident company.”

Max officials said the money raised through FCDs will be invested in the Max group’s life and health insurance business along with healthcare business.

“The FCDs will have to be converted on or before 15 months and on conversion will amount to 9.4% stake,” Max India director-corporate development Mohit Talwar said, adding “at the moment, the amount is coming in as debt and will not reflect in the holding right away.”

The FCDs will carry a coupon of 12% per annum. Mr Talwar said the money is expected to come by March after which “we are fully funded for fiscal ending 2012.”

Promoters hold about 34% while the rest is with the public, with investors like Warburg Pincus which holds 16% in Max.

Mr Talwar said to offset the stake dilution, as and when it happens, the company has issued warrants to the promoters.

Mr Talwar said, “there will be 2 million warrants aggregating about Rs 170 crore. Promoters are taking half of these warrants.”

Talking about the funding requirements of the company’s subsidiaries, Mr Talwar said Max’s businesses “are at an inflection point now”.

He said, the life insurance business (Max New York Life) is just two years away from breakeven.
The paid-up capital of Max New York Life is about Rs 1,800 crore, with a peak requirement of up to Rs 2,500 crore over the next two to two-and-a-half years.

“The business is fully funded by the virtue of the fact that the Goldman Sachs money is coming in. That takes care of the funding requirement,” Talwar added.

On the new health insurance business (Max Bupa), he said that it will be launched soon. “We have funded it with Rs 150 crore capital. That business will see a peak capital requirement of about Rs 400 crore. Break-even for that will be next 4 years or so,” he said.

The rest of the Goldman funds will be used into Max’s healthcare business, Talwar said.
On December 26, the Max board had approved issue of the FCDs to Goldman Sachs Capital Partners for an aggregate consideration of about USD115 million. The board had also approved issuing 20 lakh warrants to the promoter Singh.

Max India has interests in different sectors, including healthcare, IT services and financial services.