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| FinMin seeks legal opinion on Reliance Life IPO |
| BS Reporter / Mumbai Aug 01, 2009, 00:14 IST |
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The finance ministry has sought the law ministry’s opinion on whether a private insurance company can list before completing 10 years of operation.
The move follows a proposal from Reliance Life Insurance, a subsidiary of Reliance Capital, for launching an initial public offer (IPO). The proposal was first sent to the Insurance Regulatory and Development Authority (Irda), which said it could not waive the 10-year provision.
“At the moment, they have not finished 10 years, but if the central government wishes to reduce the period, it can do so,” Irda Chairman J Hari Narayan had told PTI earlier this month.
Section 6AA of the Insurance Act, 1938, stipulates that a promoter holding over 26 per cent in an insurance company will be required to divest in a phased manner “after a period of 10 years from the date of the commencement of the said business by such Indian insurance company or as prescribed by the central government”.
A senior government official, however, told Business Standard that the finance ministry had referred the matter to the law ministry as there were various legal interpretations of the clause.
“The government will go by the law ministry’s interpretation since no court has decided on the matter so far,” said an official.
A Reliance Capital spokes-person refused to comment.
Earlier this month, Reliance Capital Chairman Anil Ambani had told shareholders that the company was planning to unlock value in the life insurance venture through an IPO or a strategic sale. Alternatively, it could go for a mix of the two, but a final decision was yet to be taken.
In an interview in May, the Reliance Capital CEO had told Business Standard that during 2008-09, Reliance Life’s losses went up around 54 per cent to Rs 1,080 crore as against around Rs 700 crore a year ago.
The company is working on the valuation. According to the IIFL report on valuation of insurance companies, Reliance Life is valued at Rs 2,124 crore.
The Securities and Exchange Board of India does not allow companies to list without reporting three years of profit.
But looking at the capital-intensive nature of the business, it has waived this requirement.
Irda is also finalising IPO guidelines and is in talks with the Institute of Chartered Accountants of India to arrive at a uniform valuation method.
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