R General stake sale by March

Last Updated: Sat, Aug 18, 2012 11:11 hrs

Reliance Capital Ltd, which concluded a 26-per cent stake sale to Japanese insurer Nippon Life Insurance in its unit Reliance Capital Asset Management (RCAM) on Friday, said it hoped to seal a deal for a stake sale in Reliance General Insurance by the financial year-end.

Over the last 12 months, the company has been in talks with a number of domestic and foreign investors. However, Reliance General might find it difficult to match the valuations of Reliance Life as the general insurance industry has been plagued with high-loss ratios.

During 2010-11, Reliance General made a provision of Rs 240 crore for the commercial third party motor pool in the general insurance business and reported a loss of Rs 310 crore.

This year the provision towards third party motor is likely to be around Rs 65 crore.

According to insurance industry estimates, loss on account of commercial third party motor pool stood at Rs 7,000 crore during 2011-12. Third party motor pool losses are shared by all general insurance players in proportion to their market share.

Reliance Capital has also appointed Yutaka Ideguchi as non-executive director and Nippon Life nominee on the board of directors of its mutual fund and asset management arm, RCAM.

Reliance Capital has debt of Rs 18,000 crore in its book, of which Rs 13,000 crore is in the books of Reliance Commercial Finance, which has been used for onward lending. For the balance Rs 5,000 crore, Sam Ghosh, chief executive officer, Reliance Capital, said they propose to use the Rs 1,450 crore raised from the stake sale to manage its debt position, which will now stand at Rs 3,550 crore. Further, Ghosh said they would also look at selling Nippon Life products in India and introduce their products in the Japanese market.

Reliance Capital had signed final agreements with Nippon Life Insurance to sell 26 per cent stake in RCAM earlier this year, subject to regulatory approvals. The company recently completed the process of regulatory approval process with the final approval from the Employee Provident Fund Organisation for the stake sale.

Nippon Life is already a strategic partner in Reliance Life Insurance. The Japanese company acquired a 26 per cent stake in Reliance Life Insurance at an aggregate value of Rs 3,062 crore. The transaction pegged the total value of Reliance Life Insurance at approximately Rs 11,500 crore.

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