Aditya Birla Group, Nippon Life in talks to merge Indian life insurance JVs

The talks were initiated after a court-appointed administrator of Reliance Capital put the 51% stake in Reliance Nippon Life on sale

Nippon Life Corporation of Japan, which owns 49 per cent stake in Reliance Nippon Life, is in talks with the Aditya Birla Group for a potential merger between Reliance Nippon Life and Birla Sun Life Insurance after Birla acquires a majority stake in Reliance Nippon Life Insurance. The talks were initiated after a court-appointed administrator of Reliance Capital (RCap) put the 51 per cent stake in Reliance Nippon Life on sale.

Birla Sun Life is the latest to make a bid for RCap's life insurance venture and has time till month-end to acquire the 51 per cent stake and then merge the two companies.

A banking source said that under Irdai regulations, a life insurer cannot hold more than 10 per cent in an another life insurance company, hence it will be mandatory for Birla Sun Life to merge with Reliance Nippon Life Insurance -- provided it wins the race to buy the 51 per cent stake.

A Birla Group spokesperson declined to comment.

"At present the talks are centred around the valuation of two companies with Birla Life being valued at over Rs 10,000 crore and Reliance Nippon Life valued at below Rs 5,000 crore. If the merger happens, the Japanese firm will face a huge dilution from its current 49 per cent to below 15 per cent in the merged entity," said the source, requesting anonymity.

Interestingly, the talks are also about the board representation and governance of the company, as there will be three partners, the Aditya Birla Group, Sun Life of Canada and Nippon Life Corporation of Japan.

Birla Life is mainly seeking a premium valuation as Reliance Nippon Life doesn’t have a tier-1 bancassurance partner while Birla has HDFC Bank and Bank of India. Aditya Birla Sun Life Insurance had a 1.88 per cent market share of new business premium as of September, while RNLIC had 0.27 per cent, according to Irdai.

The talks between the Birlas and Nippon Life are being led by Aditya Birla Capital CEO, Vishakha Mulye, who recently joined from ICICI Bank, Singapore-based T Yao, Head, Nippon Life, Asia Pacific, and a board member of RNLIC.

Fifty five top global and local conglomerates have been keen to bid for Reliance Capital and its 19 subsidiaries so far, according to a filing made by Reliance Capital to the stock exchanges on October 20. But of these, only a few are keen to make a binding bid for Reliance Capital’s profitable insurance subsidiaries. Switzerland’s Zurich Insurance Company, and local conglomerates such as Aditya Birla Group, the Piramals and Torrent are expected to make their binding offers by November end. Bank officials say they want to complete Reliance Capital’s sale process before the ongoing financial year ends next March.