HSFC gets approval to sell 10% stake in unit to public

The Housing Development Finance Corp (HDFC) board has given approval to sell shares of its unit, HDFC Standard Life Insurance, to the public for the first time, and also marking the first insurer in India to start the process of an IPO. Standard Life owns a 35% stake in the insurer, after raising its stake by 9% last year.
The board of Housing Development Finance Corp. Ltd (HDFC) has approved a proposal to sell shares of unit HDFC Standard Life Insurance Co. to the public for the first time.

“The plan is to do this divestment in the second part of the calendar year," said Keki Mistry, vice-chairman and chief executive officer of mortgage financier HDFC.

The decision makes HDFC Standard Life the first insurer in India to start the process for an initial public offering (IPO).

In a regulatory filing, on Tuesday, the company said the board meeting was held on 18 April and it approved selling up to a 10% stake in HDFC Life.

“The board approved taking steps to initiate the process for an IPO by way of offer for sale by the corporation, up to 10% of equity of HDFC Life," the company said.

According to Mistry, HDFC has been looking to raise money through its life insurance venture for some time. “A board approval was needed to start the process, which we have now received," Mistry said.

The issue is pending regulatory approval from the Securities and Exchanges Board of India (Sebi) and the Insurance Regulatory Development Authority of India (IRDAI).

The company has not hired investment bankers for the IPO, Mistry said. HDFC owns about 61.65% in its life insurance arm.

Earlier this month, Standard Life raised its shareholding to 35% in the life insurance joint venture (JV) by purchasing a 9% stake from HDFC for ₹ 1,705 crore. The deal had valued HDFC Standard Life at ₹ 18,500 crore. The remaining stake has been provided as employee stock options, a spokesperson for HDFC said.

In a stock exchange announcement last August, HDFC had said it would sell about 179.5 million shares in the insurance JV at a price of ₹ 95 apiece to Standard Life.

“HDFC is a top tier name in the industry and, therefore, it is good that they are starting this off. It will set a good precedence for the industry in terms of public listings," said Girish Nadkarni, managing director at Motilal Oswal Investment Advisors Pvt. Ltd, an investment banking firm.

“Almost everybody in the sector will be looking at raising capital through IPOs. Insurance as a business that needs large sums of capital and getting listed will definitely help the companies with capital raising," he added.

In an interview with Press Trust of India on 3 February, SBI Life Insurance Co. chief executive officer Arijit Basu said that the firm would consider an IPO after its foreign JV partner BNP Paribas Cardiff approves a 10% equity infusion.

Foreign investors started ploughing in capital in their Indian counterparts after the government allowed them to increase their stakes from 26% to 49%.

Some of the foreign strategic partners who have increased their stake or have offered to dial up include HSBC Insurance Holdings Ltd in Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd; Aviva Plc in Aviva India Life Insurance; Insurance Australia Group Ltd in SBI General Insurance; and Bupa Plc in Max Bupa Health Insurance Co Ltd among others.

The change in foreign direct investment norms also led to other deals in the insurance space.

In December, ICICI Bank sold 6% in its life insurance venture for ₹ 1,950 crore. Of this, a 4% stake was sold to PremjiInvest and its affiliates. The remaining stake went to Compassvale Investments Pte Ltd, a unit of Singapore-based investment company Temasek Holdings, the bank had informed stock exchanges.

The transaction valued ICICI Prudential Life Insurance Company at ₹ 32,500 crore.

On 31 October, ICICI Bank announced the sale of a 9% stake in its general insurance subsidiary ICICI Lombard General Insurance Co. to Fairfax Financial Holdings for ₹ 1,550 crore. The proposed transaction valued the general insurance company at ₹ 17,225 crore.

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