With the cabinet clearing the proposal of 49% foreign direct investment, the next logical step should have been revival of initial public offer (IPO) plans of insurance companies. However, insurers do not seem to be too buoyant.
Amitabh Chaudhry, MD & CEO of HDFC Life said, "FDI in insurance is welcome and it will help the industry to access capital and expertise from foreign insurers. However, I believe FDI is not the only precondition for a public issue. For us to go for an IPO, we need the new business margin that has shrunk in the last year to go up and growth to come back. If we can sustain them, we can approach the market at that time and get the right valuation. The FDI announcement, along with the slew of measures announced earlier is good and positive signals from the Government but I don't see any significant advancement to IPO timeline for the industry at this point in time. "
IndiaFirst Life Insurance is also not keen on an IPO. P Nandagopal, MD & CEO of the firm said that though they are well capitalised presently and would not be looking to bring out a public issue, he added that 49% FDI will be an enabler as and when they decide to go public.
Industry experts said that insurance firms would not be looking at an IPO, till the FDI limit increase in insurance is approved by the Parliament. Hira Sadhak, former CEO of LIC Pension Fund said that there is a lot of uncertainty on whether the 49% FDI proposal will be passed by the House. He added that only after the bill is passed, will the companies take any call on the IPO issue.
The Insurance Laws (Amendment) Bill, 2008, approved by the Cabinet yesterday provides for raising of capital from markets by public sector general insurance companies and reinsurance companies, subject to the minimum government shareholding of 51%. But, the government-owned general insurance firms do not aspire to raise any capital from the market. G Srinivasan, chairman and managing director of United India Assurance said that they were comfortable on capital and any call on capital infusion and raising money from markets would be taken by the government.
Apart from the volatile market conditions not being conducive, experts believe that regulatory hurdles may also prohibit companies from coming out with an IPO. Insurance Regulatory and Development Authority (Irda) released draft norms for non-life insurers to bring out a public issue. As per the draft, companies need to be in operation for 10 years, to be able to come out with an IPO. Amarnath Ananthanarayanan, MD & CEO, Bharti AXA General Insurance said that IPO was a long way to go for them as they have still not fulfilled the 10 years experience criteria.
Irda is expected to come up with the final IPO guidelines for general insurance companies in the next few weeks.
Last year, Irda had bring out a similar notification for IPO for life insurance companies. As per that guideline, life insurance companies had to be in operations for 10 years to qualify to bring out an IPO. As per this 10 years in operations clause, companies like HDFC Life, ICICI Prudential Life Insurance and SBI Life Insurance were eligible for bringing out the public issue.