Private sector lender Axis Bank is set to acquire nearly 30% of Max Life Insurance Co from Max Financial Services, the flagship listed company of Analjit Singh, for Rs 1,600 crore.
The deal, if concluded, will put Axis Bank in the league of other leading private and public sector lenders such as HDFC Group, ICICI Bank, Kotak Mahindra Bank and State Bank of India that have significant stakes in life insurance companies.
The transaction will be subject to approval by the central bank, the Competition Commission of India and the market and insurance regulators.
Meanwhile, Axis Bank – India’s fourth-largest private sector lender – will become a strategic partner of the life insurance firm, in which Max Financial will eventually hold 70% after a two-stage transaction.
The deal is likely to be completed through a secondary share sale transaction and is priced at book value.
Under the deal, Axis Bank will have three to four nominees on the board of Max Life Insurance Co.
Both sides are believed to have signed an exclusivity and confidentiality agreement in February 2020. Axis Bank, which currently owns a little less than 2% of Max Life Insurance, will increase its stake subject to regulatory approvals.
Max Financial restructured the shareholding of Max Life in March 2020. Under that scheme, Mitsui Sumitomo Insurance swapped 20.57% of its stake in Max Life Insurance for a 20.87% stake in Max Financial in a cash-less transaction. Max Financial has the option to buy back the remaining 5% stake that Mitsui Sumitomo holds in Max Life Insurance, which it will do so for Rs 804 crore with part of the proceeds from the share sale to Axis Bank.
The transaction will result in changing the nature of involvement of Axis Bank with Max Life Insurance from a pureplay bancassurance partner to a significant equity shareholder and joint venture partner that will allay the overhang of uncertainty of long-term bancassurance partnership for Max Life Insuranc
Max Life is currently the largest non-bank-owned private life insurer in India with an embedded value of Rs 10,077 crore and is trading at much lower multiples than peers such as SBI Life, HDFC Life and ICICI Life.
The successful completion of the proposed transaction is expected to create significant value for all stakeholders.
For Max Life, in the first nine months of FY2020, the proprietary and bancassurance channels demonstrated strong growth of 22% and 20%, respectively. The value of new business during the first nine months of FY20 was Rs 576 crore, up 24% over the year-earlier period. Total first-year premium increased 19% to Rs 3,693 crore. Renewal premiums rose 11% to Rs 6,618 crore.
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