L&T to sell 49% in insurance arm

Infrastructure and engineering major Larsen & Toubro (L&T) is planning to sell 49 per cent stake in its general insurance company to a foreign entity. The deal is expected to be finalised in the next three to six months.

L&T General Insurance Company is a wholly owned subsidiary of L&T and among the few in the sector without a foreign partner. The Insurance Laws (Amendment) Act of 2015 has allowed foreign direct investment (FDI) up to 49 per cent in insurance companies. Earlier, only 26 per cent FDI was allowed. "The stake sale is primarily targeted at monetisation. The firm has been going it alone so far and the aim is to bring in a foreign partner, which can bring in the requisite underwriting expertise and technological advancements," said a person who did not want to be identified.

Another said L&T had been engaging with prospective entities for a stake sale. An e-mail to the company on this deal wasn't answered. Based on the deals in the past, experts estimate this agreement could value the general insurer at around Rs 1,500 crore. In March 2013, L&T, Kishore Biyani's Future Group and Generali Group had signed a non-binding term sheet for the merger of L&T General Insurance and Future Generali India Insurance. This was a first-of-a-kind proposed in the sector. L&T was to hold 51 per cent stake, Generali Group 26 per cent and 23 per cent by Future Group.

However, in April 2014, L&T General and Future Generali India said they were calling off the venture, due to 'inordinate delay' in finalising a transaction. L&T General Insurance posted a loss of Rs 68.5 crore for the April to December period in the current financial year, after a Rs 70 crore loss for the same period in the previous year. In an earlier interview, G C Rangan, director and chief executive officer, had told Business Standard they'd break even in 2017-18. The insurer collected net premium of Rs 240.3 crore for April-December, compared to Rs 174.5 crore in the same period a year before.

Apart from insurance, L&T is reportedly looking to sell a 49 per cent stake to a strategic partner in its mutual fund (MF) business as well. L&T Finance had bought Fidelity's Indian MF arm in early 2012 for about Rs 550 crore, to become the 13th largest fund house, with assets of Rs 13,500 crore. The fund house is still ranked 13th but its assets had risen to about Rs 25,000 crore as of end-December 2015.

Sources say L&T should get roughly Rs 600 crore if it sells its stake at five to six per cent of its assets under management. Apart from monetisation, L&T MF is looking at improving its distribution reach and is likely to sell stake to a domestic bank.