MetLife Inc is set to pay close to Rs 190 crore to Jammu and Kashmir Bank for buying a part of its stake in their insurance joint venture, MetLife India Insurance Co. The bank will sell 50 million shares to the global insurer, sources familiar with the development told Business Standard.
The move is aimed at maintaining MetLife's 26 per cent stake in the Indian insurance venture.
Earlier, it was decided that Punjab National Bank (PNB) will acquire 30 per cent stake in MetLife India Insurance buying shares from the joint venture partners. As part of the deal, MetLife, along with its other joint venture partners Jammu & Kashmir Bank, Karnataka Bank, Geojit Securities, Karvy Consultants and others, will transfer a part of its shares to PNB.
"It was planned earlier, but we were waiting for the PNB transaction to happen first. We now expect this deal to happen as Irda (Insurance Regulatory and Development Authority) has cleared PNB's proposal," a source said.
Jammu and Kashmir Bank will transfer another 66 million shares to PNB but will retain a minority stake in the insurance company. The bank has around 11 per cent stake in the company now.
"Jammu & Kashmir Bank is not exiting the company completely. It has been an important business for them in terms of fee income. They will retain around five per cent stake in the company," said another source.
Analysts feel the bank will benefit from this transaction, as it will make around Rs 130-140 crore profit by selling shares to MetLife Inc.
The chief executives of both Jammu and Kashmir Bank and MetLife India Insurance declined to comment.
Earlier this month, Irda approved PNB's proposal to acquire 30 per cent stake in the insurance company. The transaction was pending the insurance regulator's approval for over a year as Irda was not comfortable with the deal structure and had directed the insurance company to re-work the sale agreement with bank.
Under the revised structure, existing shareholders of MetLife India Insurance will sell a part of their stake to the state-run bank. This will ensure the equity capital base of the insurance company is not increased leaving its key efficiency ratios unchanged.
The previous proposal envisaged that existing shareholders will issue fresh shares, and PNB will acquire 30 per cent stake in the expanded equity base.
While the initial proposal was approved by the Reserve Bank of India (RBI), Irda felt the deal was not consistent with Indian Accounting Standards and had also questioned the valuation. The government-owned bank had planned to buy the stake for Re 1 only.
"PNB will have 30 per cent stake in the form of sweat equity. Their branch network will be used for selling MetLife India Insurance's products. The final details are being worked out," the source said.