Q&A: Gerry Grimstone, Chairman, Standard Life

Last Updated: Wed, Sep 29, 2010 07:22 hrs

Gerry Grimstone, Chairman of UK-based Standard Life says there is a misapprehension that foreign players will raise their stake in their insurance joint ventures when the FDI (foreign direct investment) Bill is passed. In an interview with Shilpy Sinha, he says that clarity on foreign shareholding, stability of regulatory framework and strong management is necessary to list an insurance company. Edited excerpts:

Are you going to dilute your stake when HDFC Standard Life goes public?

Nobody knows what the answer is. We are very happy to be here and keen to carry on with HDFC. We need to know where we stand if we had an IPO (initial public offer). We would not like to dilute at 26 per cent and like to be invested in India. At the same time, we do not know if we want to increase our shareholding to 49 per cent. We have not yet sat down and decided on those terms because there is no framework.

What does your MoU (memorandum of understanding) with HDFC says on raising your stake?
We are happy with our MoU with HDFC. It talks about fair value, usage and phrases. None of us are looking to take advantage of that. If you are working with someone for 10 years, it is a kind of relation. No one would like Indian partners selling shares cheaply to the foreign players.

After the FDI limit is raised and the companies go public, will the foreign players have majority shareholding?
It is inconceivable that foreign partners will be left with majority shareholding. We have absolutely no desire to have majority shareholding. Every partner has gone into an agreement with their partners and it differs from one company to another.

There seems to be a misapprehension in India that the moment the Insurance Bill is passed, holdings of foreign companies in Indian insurance companies will jump immediately from 26 per cent to 49 per cent. My point is that every company has a different agreement between the parties, which they entered 10 years ago that may or may not change. Either the law has to be clarified on foreign holdings, so that the parties can work out what will be the final shareholding and how the IPO will be conducted.

You have earlier said you have a 50:50 partnership?
Emotionally, we are like a 50:50 company. I am very respectful of the fact that this company could not exists without HDFC. We have not taken any decision on whether to increase our stake from 26 per cent to 30-35 per cent. We will take a call after the Bill is amended.

Will you first go public or raise your stake to 49 per cent?
We would decide the whole thing once the Bill is passed. We will work out the best shareholding with the promoters.

To go public we need to have three things in place — profitable business model, strong management and clarity on foreign shareholding. There should also be a stable regulatory system. The regulator said they were going to come up with some change in the Universal Life Space. The foreign shareholders needed to understand where they stand in the shareholding. Unless the regulations are changed, we cannot bring in any FII (foreign institutional investment) money. So, is this IPO going to be just domestic IPO? One can’t plan an IPO unless these things are in place. Once these are in place, it will take six to nine months.

Since you are going to complete 10 years soon, are you concerned over the profitability of the company?
It may become profitable in the coming quarter. We know what kind of inherent profitability an insurance company is going to post. As soon as companies go through the tipping point, they start posting profits. The company is developing very fast and approaching break-even. So, IPO will happen as soon as it is ready.

How do you react to the regulatory changes in the mutual fund space?
This is a feature of the industry. We have a 40 per cent stake there with HDFC. There is no plan of an IPO.

You started a private equity last year. Did it take off?
No, that hasn’t taken off. We have not raised any fund or invested anywhere.

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