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December 23, 2014
Wipro founder Azim Premji’s Premji Invest, a family office specialising in private equity and venture capital investments, will purchase a 1 per cent stake in India’s HDFC Standard Life Insurance for Rs 185 crore, valuing the firm at Rs 18,500 crore, two people with direct knowledge of the development said..
The stake sale is the preliminary step to taking the company public, they said. This will mark the billionaire’s entry into the insurance business, one of the two people cited above said, adding, “They might look at hiking the stake going forward.” The deal is expected to be announced this week. Edelweiss Securities is the exclusive advisor on the transaction.Premji Invest, with assets worth more than $2 billion under management, has been investing in high-growth listed and unlisted companies in India as well as growth-stage companies in China and the US with a focus on consumer, technology, financial services and healthcare..
The fund has been aggressive in the last few years, stepping up its pace of investments. In October, it put Rs 350 crore in payment services provider FSS that is backed by PE funds Jacob Ballas and NYLIM. Before that, it had invested in FabIndia and Future Lifestyle in retail, Flipkart and Snapdeal in ecommerce, NSE in financial services, and Manipal Group and Health Care Global (HCG) in healthcare. HDFC Life, in which British insurer Standard Life owns 26 per cent and and the rest is held by Housing Development Finance Corp, has more than 500 branches and one of the largest sales forces among non-state peers. It is also the oldest private life insurance company in the country with more than Rs 50,000 crore of assets under management..
“The life insurer might look at listing once the regulations regarding public offers by insurers are cleared by the regulators,” said an investment banker with knowledge of the development. “The investment by Premji Invest is a pre-IPO one.” Prakash Parthasarathy, chief investment officer at Premji Invest, did not respond to an emailed questionnaire, while Amitabh Chaudhry, managing director and CEO of HDFC Life, did not respond to calls and messages on his cell phone. The Narendra Modi government is resolved to get the insurance bill passed by Parliament to raise overseas investment limit to 49 per cent from 26 per cent. That will help capital-hungry insurance companies raise capital and fund expansion. India’s insurance industry has been struggling with low subscription levels. Even after 14 years of opening up the sector for private participation, only about 3.2 per cent had life insurance in the country in FY2013, down from 4.6 per cent in FY2009..
However, “We believe that the key structural drivers, namely underpenetrated market, favourable demographics, high savings rate coupled with better policy holder friendly products and an expected recovery in the economy can provide impetus to the industry,” said an ICRA report on the sector. “At the industry level, we expect growth of around 10 per cent on an annual premium equivalent or APE basis in FY15 and 12-15 per cent over the next few years as the operating environment improves further.” Annual premium equivalent is a common measure of ascertaining business in the life insurance industry. It’s the sum of the regular annualised premium from new business and 10 per cent of the first single premium in a given period. Global insurance and financial services companies are bullish about the future of India’s insurance industry as many overseas firms want to raise their stakes in local ventures once the law is changed..