Star Health promoters to dilute stake

Sequoia Capital to invest Rs 160 crore in holding firm to bypass 26% FDI rule.

The promoters of Star Health and Allied Insurance Company, the country’s first and largest standalone health insurance company, are planning to sell stake to Sequoia Capital.

The latter, a venture capital firm, plans to invest around Rs 160 crore in Star Health Investments Pvt Ltd, which holds a majority stake in Star Health.

V Jagannathan, chairman and managing director of Star Health, told Business Standard, “The deal is expected to conclude in the next 10 days”.

While the percentage of the proposed dilution was not revealed, a senior official said the investment would not be directly into Star Health, as the law permits foreign investment up to only 26 per cent of the total equity in an insurance company.

Star, established in 2006, was promoted by shareholders of the ETA Ascon Group (a West Asia-based business conglomerate, with interests in engineering, shipping, real estate and financial services) and Oman Insurance (a subsidiary of the United Arab Emirates-based Mashreq Bank). At present, Oman Insurance has 10 per cent stake, ETA Ascon and its chairman, Syed Mohammed Salahuddin, together have eight per cent and Abdullah al Ghurair, who comes from one of the world’s richest families, has eight per cent.

“Since we will not able to raise the money directly from Sequoia Capital, our main promoters in Dubai are in discussions to dilute their stake in Star Health Investments Pvt Ltd, a special purpose vehicle (SPV) which was floated for Star Health,” said a company source.

The SPV has already got the Foreign Investment Promotion Board approval for induction of foreign equity to the tune of Rs 160 crore. The SPV was holding 70 per cent in Star. This came down to 61 per cent, as part of a process in which ICICI Venture took 14 per cent stake this March.

“The committed investment by ICICI Venture is Rs 120 crore. So far, we have taken only Rs 100 crore and there is head-room to raise another Rs 20 crore from the firm,” said the official. He said Star’s capital base was Rs 303 crore and was expected to go up to Rs 400 crore after the proposed equity investment.

According to the Insurance regulatory and Development Authority, the premium underwritten by Star in April-September this year was Rs 581.85 crore, as compared to Rs 433.9 crore during the same period last year, an increase of 34.1 per cent. The total premium collected by standalone health insurers in the period was Rs 677.6 crore, compared to Rs 482.8 crore during the same period last year. There are two other standalone health insurers, Apollo Munich, which collected a premium of Rs 87.5 crore, and Max Bupa, which mopped up Rs 8.25 crore.

In August, Jagannathan said, the company set a target of Rs 1,350 crore premium in 2010-11, as compared to Rs 950 crore, a year before, an increase of 42 per cent.

The bulk of this is expected from Tamil Nadu and Andhra Pradesh governments, who have both given a contract to Star to implement a state-sponsored health insurance scheme to cover people below the urban poverty line.