Foreign allies can up stake in insurance JVs with PSBs
Foreign partners have been given the option by public sector banks to significantly raise their equity stake in their respective insurance joint ventures.
By TNN |
Foreign partners have been given the option by public sector banks to significantly raise their equity stake in their respective insurance joint ventures. The foreign companies, currently holding 26 per cent in JVs, will have the right to buy additional shares to reach 49 per cent holding soon after regulations allow higher FDI in insurance. However, the agreement also says state-owned banks would retain their equity stake at 26 per cent — the critical level which ensures the veto power — at all point of time.
But, unlike the Bajaj Allianz deal, where Bajaj Auto has a pact with the German insurer to sell shares at nominal value, state-owned banks will sell at a price based on valuation of insurance venture at that point of time. Such agreements have been struck by most private players. At present, FDI holding in insurance venture is capped at 26 per cent and the government has proposed to raise it to 49 per cent.
For instance, the MoU of the IDBI-led insurance venture with Fortis stipulates that the foreign partner will be allowed to raise the equity stake to 49 per cent, but it also states that IDBI will always hold 26 per cent stake in the venture. Currently, IDBI holds 48 per cent stake while South-based Federal Bank and Fortis have 26 per cent each. Both IDBI and Federal Bank will gain when they sell their shares because it would be sold at a premium.
Same is the case with the Allahabad Bank-led insurance venture with Sompo, which also has Indian Overseas Bank, Karnataka Bank and the Burman group as its partners. Here, the MoU stipulates that Allahabad Bank and IOB will jointly hold at least 26 per cent in the venture while Sompo will be allowed to raise its stake to 49 per cent. At present, Allahabad Bank holds 30 per cent, IOB has 19 per cent, Karnataka Bank has 15 per cent and Burman group has 10 per cent with Sompo holding 26 per cent. The MoU is slightly different in case of Bank of India led insurance venture where the bank has 51 per cent stake, Union Bank has 23 per cent and Dai-chi has 26 per cent. Here, the MoU says that only the foreign partners will be allowed to raise their equity stake as and when the regulations permits, but even Union Bank will hike its stake to the critical level at 26 per cent. BoI will bring down its stake to 30 per cent and Dai-chi will hold 44 per cent.
The MoU will also allow Union Bank to raise its stake at par while the foreign partner will have to pay a premium based on the valuation arrived at that time. This clause is also aimed at protecting Union Bank interest as minority shareholder. It may be recalled that Andhra Bank had earlier walked out of the insurance deal with BoI because it was not happy holding less than 26 per cent stake in the company.
Sources said that HSBC, the foreign partner, in the case of the Canara Bank-led insurance venture would be allowed to raise it stake to 49 per cent while Canara Bank will continue to hold 26 per cent at all point of time. At present, Canara Bank holds 51 per cent while Oriental Bank of Commerce has 23 per cent in the tie-up. Meanwhile, Bank of Baroda, which recently tied up with Legal & General, has to yet finalise its third partner for the venture.
But, unlike the Bajaj Allianz deal, where Bajaj Auto has a pact with the German insurer to sell shares at nominal value, state-owned banks will sell at a price based on valuation of insurance venture at that point of time. Such agreements have been struck by most private players. At present, FDI holding in insurance venture is capped at 26 per cent and the government has proposed to raise it to 49 per cent.
For instance, the MoU of the IDBI-led insurance venture with Fortis stipulates that the foreign partner will be allowed to raise the equity stake to 49 per cent, but it also states that IDBI will always hold 26 per cent stake in the venture. Currently, IDBI holds 48 per cent stake while South-based Federal Bank and Fortis have 26 per cent each. Both IDBI and Federal Bank will gain when they sell their shares because it would be sold at a premium.
Same is the case with the Allahabad Bank-led insurance venture with Sompo, which also has Indian Overseas Bank, Karnataka Bank and the Burman group as its partners. Here, the MoU stipulates that Allahabad Bank and IOB will jointly hold at least 26 per cent in the venture while Sompo will be allowed to raise its stake to 49 per cent. At present, Allahabad Bank holds 30 per cent, IOB has 19 per cent, Karnataka Bank has 15 per cent and Burman group has 10 per cent with Sompo holding 26 per cent. The MoU is slightly different in case of Bank of India led insurance venture where the bank has 51 per cent stake, Union Bank has 23 per cent and Dai-chi has 26 per cent. Here, the MoU says that only the foreign partners will be allowed to raise their equity stake as and when the regulations permits, but even Union Bank will hike its stake to the critical level at 26 per cent. BoI will bring down its stake to 30 per cent and Dai-chi will hold 44 per cent.
The MoU will also allow Union Bank to raise its stake at par while the foreign partner will have to pay a premium based on the valuation arrived at that time. This clause is also aimed at protecting Union Bank interest as minority shareholder. It may be recalled that Andhra Bank had earlier walked out of the insurance deal with BoI because it was not happy holding less than 26 per cent stake in the company.
Sources said that HSBC, the foreign partner, in the case of the Canara Bank-led insurance venture would be allowed to raise it stake to 49 per cent while Canara Bank will continue to hold 26 per cent at all point of time. At present, Canara Bank holds 51 per cent while Oriental Bank of Commerce has 23 per cent in the tie-up. Meanwhile, Bank of Baroda, which recently tied up with Legal & General, has to yet finalise its third partner for the venture.
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