IPO norms unlikely to be eased for insurers

The Insurance Regulatory and Development Authority (Irda) and the Securities and Exchange Board of India (Sebi) are unlikely to provide any relaxation to insurers when these companies tap the equity market to raise funds.

Sources said the two regulators discussed the possibility of relaxing the condition of a three-year profitability record but decided against doing so.

As a result, loss-making insurance companies will have to reserve at least half their issues for institutional investors. For profitable companies, the guidelines mandate that institutional investors may acquire up to 50 per cent of the issue, while 35 per cent is reserved for retail investors.

In addition, insurers had sought raising of funds through an initial public offer (IPO) before they had completed 10 years of operations. Irda was against any relaxation at present, as the Insurance Act did not provide for it, sources said.

As a result, companies such as Reliance Life would have to wait for the law to be amended to launch their IPOs.

Irda and Sebi are holding consultations to finalise the IPO guidelines for insurance companies. The insurance regulator is separately working on valuation norms.

A senior official at a regulatory body said Irda was yet to firm up the valuation guidelines, which were expected to be based on the market-consistent embedded value.

In addition, Irda is to monitor the end use of the money collected by insurance companies through IPOs. At a meeting earlier this month, Irda representatives asked Sebi to allow the insurance regulator to monitor the end-use of funds raised through IPOs. The inter-regulatory committee (with members of both Irda and Sebi) agreed to our request, said an Irda official.

Generally, the corporate affairs ministry keeps a check on the end use of the funds raised and whether IPO proceeds are used for the purposes mentioned in the prospectus.

The IPO guidelines are unlikely to prescribe the minimum stake dilution for promoters. “The decision about the percentage of stake to be offloaded is pending with the government,” said the official.

At the time of the opening of the sector, it was decided that Indian promoters would have to lower their stake to 49 per cent after 10 years of operation while foreign promoters would have the option to retain the maximum permissible 26 per cent.

Through amendments to the Insurance Act, the government has proposed to remove the clause, while suggesting the foreign investment ceiling be enhanced to 49 per cent from the present level of 26 per cent.