China Life may help in pre-IPO placement

Reliance Life is in talks with Chinese insurance giant China Life for a pre-initial public offer (IPO) placement. The Anil Dhirubhai Ambani group company is also in discussions with a private equity player for a total placement of 15 per cent stake.

The private insurer has been contemplating public offer for over six months now and is awaiting a government waiver to allow the IPO. Reliance Life and Sahara Life are the only two players who own 100 per cent stake in the life insurance space.

Sources told Business Standard that the insurer has also held discussions with a number of foreign institutional investors (FIIs) and pension funds for strategic placement.

Reliance Capital Managing Director Sam Ghosh said the company would first talk to a global insurance player for a majority of the 15 per cent stake. ‘We would bring in a private equity firm after that,” he said.

Ghosh, however, said the company has not entered into any discussions with any insurance firm for pre-IPO placements, as the process would start only after the IPO guidelines were in place.

The insurer is awaiting changes in listing rules. By the present rules, an insurance company has to complete 10 years of operation before it can list. The Insurance Regulatory and Development Authority (Irda) and the Securities and Exchange Board of India (Sebi) has formed an inter-regulatory committee to finalise the listing norms.

The guidelines are expected to come around January last week. Since the insurance regulator has put up the disclosure norms, the company will have to put out the revenue account, profit and loss account and balance sheet for atleast four-five years.

Reliance Life requires Rs 490 crore of capital in this financial year. Since insurance is a capital intensive business, funds are required not only in physical expansion but also for writing new businesses. The private insurer aims at 20 per cent growth in the new sales during the current financial year. Insurance companies have to maintain 150 per cent solvency margin for every policy it sells.

“We are investing on expansion, as we are a four-year old company and we plan to expand next year. We have put in Rs 55 crore of capital in the first half of 2009-10,” said Reliance Life CEO Malay Ghosh.

Since the public offer is not expected this financial year, Ghosh said Reliance will put in the required capital.

The company plans to hire around 75,000 agents and open another 200 branches in the next financial year. It has been hiring 4,000-5,000 agents every month.

“We expect to bring down the management expense from over 30 per cent to 23 per cent by the end of this financial year,” Ghosh added. During the first six months, the company has recorded a drop of 15.26 per cent to Rs 1,248.52 crore in the premium collection from sale of new policies.

Clarification: 
Reliance Life has denied that it is in talks with China Life for a pre-IPO placement.