HDFC Life to launch IPO; Max Life merger on hold with no regulatory nod

Till now, structure prior to an IPO has been identified which satisfies shareholders' requirements

HDFC Standard Life Insurance on Monday led to come out with an IPO and put on hold its proposed merger with Max Life in absence of regulatory approval. 

The board of HDFC Standard Life Insurance in its meeting held on July 17 has approved an enabling resolution for an initial public offer (IPO) by way of offer for sale by the HDFC and Standard Life in the ratio as mutually agreed amongst them up to a maximum of 20 per cent of the paid up capital, the insurer said in regulatory filing on stock exchanges.

Paid up share capital of the insurance firm was Rs 2,190 crore at the end of March 2017.

"The IPO is subject to relevant regulatory and other necessary approvals, as applicable/ required, including that of the Insurance Regulatory and Development Authority of India," it said.

Embedded Value of HDFC Life rose to Rs 12,390 crore as on March 31, 2017 as against Rs 10,230 crore.

Assets Under Management increased by 24 per cent to Rs 91,740 crore.

With reference to the earlier announcement of a proposed merger between HDFC Life and Max Life, it said, "we continue to believe that such a transaction if it can obtain the necessary approvals, would create strategic value for both the companies."

In August 2016, the board of mortgage lender HDFC had approved merger of Max Life and Max Financial Services with its insurance arm HDFC Standard Life Insurance Company.

Last month, Max India exuded confidence on proposed merger saying both the parties were committed and "evaluating various options" post Irdai's denial last November to scheme because of the complex nature of merging an insurance business with a financial entity.

At present time, it said, no structure prior to an IPO of HDFC Life has been identified which satisfies shareholders' requirement.

"If Max Life and ourselves are able to obtain all the necessary regulatory approvals, HDFC Life Board and its promoters would be willing to re-evaluate the option of merger with Max Life in due course," it said.

As per the original plan, Max India was supposed to amalgamate Max Life Insurance with Max Financial Services. Subsequently, the insurance business of the merged entity was to be demerged so that it could be transferred to HDFC Standard Life Insurance Company.

However, the whole scheme did not go down well with the Insurance Regulatory and Development Authority of India (Irdai) as it was in contravention of the Section 35 of the Insurance Act, 1938 that does not allow merger of an insurance business with a non-insurance.

Section 35 of the Insurance Act, 1938 does not allow merger of an insurance firm with a non-insurance firm.

HDFC Standard Life Insurance (HDFC Life) is a joint venture in the ratio of 61.5:35 between India's biggest mortgage lender HDFC Ltd and UK's Standard Life.

Max Financial Services, promoted by USD 2 billion Max Group, is the holding company for Max Life which is a joint venture with Mitsui Sumitomo Insurance Company. Max Financial owns 68 per cent stake in Max Life, while Mitsui Sumitomo owns 26 per cent.