Murugappa May Offload 25% In Insurance Joint Venture

The 3,900 crore Chennai-based Murugappa group is planning to offer a 25 per cent stake to financial investors in its proposed general insurance venture.

As per present plans, Tube Investments of India, part of the Murugappa group, will hold a 49 per cent stake in the insurance venture, the balance 26 per cent stake will be held by Cholamandalam Investment & Finance Company (17 per cent) and other group firms (9 per cent).

"We have initiated negotiations with a number of financial investors to offer equity. A decision will be taken soon. Though we are looking for some financial partners, we do not want to induct any insurance and strategic investors in our venture," said M A Alagappan, vice-chairman and director, Murugappa group.

The Murugappa group on Thursday submitted the R1 application (level-1 application for in-principle clearance) with the Insurance Regulatory and Development Authority (Irda) for the general insurance licence. "We are yet to finalise our marketing strategy," he added.

The group is of the view that services will be the area that is likely to see high growth in coming years. Tube Investments has selected, initially, to foray into the financial services sector through the acquisition of an additional 41.8 per cent stake in Cholamandalam Investment.

The strengths of the Rs 1000 crore Tube Investments allow it to take on projects requiring high investment and involving a fairly large gestation period such as the insurance business. The company has reserves and surplus of Rs 362.75 crore in fiscal 2000-01, analysts said.

The group's investment in the insurance venture will be through internal sources. At this point of time, the company is not planning to enter the market to raise funds.

Under the Irda norms, a new insurance company should have a minimum capital base of Rs 100 crore and the regulator has put a cap on foreign equity at 24 per cent.

The Murugappa group has recently jettisoned the family control over the group by inducting some professionals. Cholamandalam Finance, early this year, had forged an alliance with HDFC-Standard Life to distribute the latter's insurance cover nationwide.