Nippon Life-Birla Sun Life merger talks fail ahead of RCap deal deadline

Sources say Nippon Life of Japan not keen on diluting its holding in Reliance Nippon Life Insurance Company to less than 10%--something that the merger will bring about

Talks between the Aditya Birla group and Nippon Life to merge Birla Sun Life and Reliance Life have collapsed -- just weeks before the deadline to make final bids for Reliance Capital ends.

Aditya Birla group was planning to bid for 51 per cent stake of Reliance Capital’s (RCap's) stake in Reliance Nippon Life Insurance Company (RNLIC), a 51:49 per cent joint venture.

Banking sources said Irdai guidelines make it clear that no cross holding are allowed between two insurers.

The only solution was to merge between Birla Sun Life and Reliance Nippon Life. In such an eventuality, Nippon Life of Japan's stake would have dipped to below 10 per cent in RNLIC--something the Japanese firm was not comfortable with as it would end up losing all the shareholder and the governance rights that exist in terms of nominating the CEO, equal representation on the board, member of the audit committee, and veto rights on key matters.

Nippon Life is far more comfortable with the 51 per cent being acquired by someone like Hindujas, who are also bidding for RCap, as it sees the potential of getting IndusInd Bank as a bancassurance partner, which is key to the growth of life insurance distribution business.

An Aditya Birla spokesperson did not respond to email queries.

Birla Life was 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 the Irdai.

Fifty five top global and local conglomerates have been interested in bidding for Reliance Capital and its 19 subsidiaries so far, according to a filing by Reliance Capital to the stock exchanges on October 20. 

However, of these only few are keen to make a binding bid for Reliance Capital’s profitable insurance subsidiaries.

Switzerland’s Zurich Insurance Company, and local conglomerates including Aditya Birla Group, the Piramal group, and Torrent group are expected to make their binding offers by November end.