The Insurance Regulatory & Development Authority (IRDA) is set to cap the stake dilution by life insurers in the first three years of listing. The market regulator, the Securities & Exchange Board of India (SEBI), mandates that 25 per cent shares of a listed company should be held by the public. IRDA is in talks with SEBI to waive this rule.
Private life insurers such as Reliance Life, ICICI Prudential, HDFC Life and SBI Life have expressed interest in tapping the capital markets. The huge valuations of life insurance companies are said to be the main reason for the move, according to a source with direct knowledge of the matter.
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"At present, the market value of all life insurance companies if they dilute 25 per cent stake is estimated around Rs 60,000 crore. It will be very hard for the market to absorb such a huge amount. So, there must be a cap on the extent of stake dilution," said the source.
However, details regarding the extent of the dilution by joint venture partners could be left to the companies. "There are a lot of issues involved with shareholding agreements in joint ventures. Ideally, regulators would like to stay away from them. It is still being debated, but will vary on a case-to-case basis," an IRDA official told Business Standard on condition of anonymity. He added the regulator would, however, prefer domestic companies to hold the majority stake.
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At present, most of the 22 private life insurers have foreign partners. The Insurance Act caps foreign direct investment at 26 per cent.
IRDA is likely to release the IPO guidelines within the next 30-45 days.
According to IRDA data, during the first nine months of the financial year, the new business premium income of life insurance companies stood at Rs 86,699 crore. The private life insurers accounted for around 29 per cent of this.
IRDA may also allow companies operational for seven years to tap the capital market. The present norms mandate at least 10 years of operations.
IRDA may also allow companies which have not registered profit for the past three consecutive years to float a public issue. "According to the disclosure norms, it will be mandatory for insurance companies to declare the profitability of individual products in balance sheets. This apart, they have to disclose their balance sheets, premiums, commission expenses, operating expenses, on annual, half-yearly and quarterly basis. This will help investors take informed decisions," said the IRDA official.
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In addition, the guidelines are expected to follow the usual norms. Under these, individuals holding more than 10 per cent stake would be considered promoters and would have to maintain the 1.5 solvency ratio.