After Future Capital, Kishore Biyani is getting ready to unlock value in his general insurance joint arm.
According to three independent sources, Reliance General Insurance, the non-life insurance arm of the Anil Ambani-led Reliance Capital, has initiated talks with Biyani on a potential merger between Reliance General and Future Generali India Insurance Company.
“Talks are on currently, but both the parties are yet to agree on the valuation. Also, Generali Group is keen on having operational control in the merged entity,” said a source.
Formed in 2007, Future Generali is a joint venture between Biyani’s Future Group and the Generali Group of Italy. The Future Group owns 74 per cent stake in the company, while the Italian insurer owns the remaining 26 per cent, the highest permissible limit by Indian laws. Of the 74 per cent, Biyani’s flagship Pantaloon Retail directly and via special purpose vehicles holds close to 50 per cent stake, while the Biyani family holds around 25 per cent. Both companies have a similar joint venture in life insurance, named Future Generali Life.
When asked, a Reliance Life spokesperson declined to comment on the issue, while a Future Group spokesperson denied such talks were on.
Though details of the structuring and valuation were still being worked out, the sources said the plan was Generali would take 26 per cent stake in the merged entity, Reliance Capital would have 51 per cent and Future Group the remaining 23 per cent. Subsequently, the new entity might look to divest stake to raise Rs 1,200-1,500 crore. But considering the FDI cap of 26 per cent in the sector, the domestic shareholders will then have to dilute their equity further.
The sources added Future Group had planned to raise Rs 1,000 crore by monetising its two insurance ventures. Future Group’s general insurance arm is the larger business, as it had grown its premium income 53 per cent to Rs 938 crore during 2011-12 from Rs 612 crore collected in the previous financial year. The total share capital of Future Generali India was Rs 512 crore as on December 31, 2011.
An investment banker privy to the developments added Reliance might not be the only party with whom Biyani has had discussions for stake sale in the insurance business and the talks might eventually not fructify in a deal. “It is part of Future Group’s strategy to divest non-core businesses, including insurance businesses. Talks are on with multiple parties and Biyani is yet to finalise a partner or a time frame for the closure for any transaction. But by the end of the year, I expect some closure, ” he said.
Reliance General is wholly owned by Reliance Capital and collected Rs 1,712 crore during 2011-12 by writing new policies, 3.5 per cent higher when compared with the previous financial year’s collection. Last year, Reliance Capital divested 26 per cent stake in its life insurance arm, Reliance Life, to Japanese insurer Nippon Life for Rs 3,000 crore.
Two years earlier, Reliance Capital had plans to merge Reliance General Insurance with Sundaram Alliance Insurance Company, a joint venture between Sundaram Group and England-based RSA, which owns 26 per cent stake in the alliance. Subsequently, it had approached the Insurance Regulatory and Development Authority. In the proposed deal, the Anil Dhirubhai Ambani Group was looking to buy out the entire stake of Sundaram Group. However, the proposed deal didn’t see the light of day, due to valuation issues.
During 2010-11, both Reliance General and Future Generali made underwriting losses. While Reliance General made a loss of Rs 342 crore, Future Generali declared a net loss of Rs 42.5 crore in April-December last year. The business, however, is expected to turn profitable this fiscal.