Ergo buys 26% in HDFC arm

Housing Development Finance Corporation (HDFC) has decided to sell 26 per cent stake in HDFC General Insurance (HGICL) to Germany's Ergo International.

Under the agreement, HDFC has agreed to sell 3.25 crore HGICL equity shares of face value Rs 10 each, representing 26 per cent of the paid-up equity capital.

The new joint venture company will be named HDFC Ergo General Insurance. The JV will headquarter in Mumbai.

HDFC and Ergo intend to complete the proposed transaction by year-end. Though the purchase price of the transaction has been kept confidential, market sources said that Ergo has paid a premium of over Rs 100 crore to HDFC.

Ergo is the primary insurance entity of the Munich Re Group, the world's second largest reinsurance company. Ergo has a presence in 24 countries in the direct life insurance and non life insurance businesses.

According to experts, Ergo has grown through acquisitions in most markets. In Europe, it acquired several insurance companies operating in the property and casualty space. In India, too, this strategy has been applied where it has acquired Chubb's stake.

Ernst &Young acted as a consultant for Ergo.

Says Ashvin Parekh, partner and national leader (global financial services), E&Y, "It is going to be a 50-50 situation where the JV will focus on developing the commercial and retail businesses in three to four years."

In the presence of German Chancellor Dr Angela Merkel and Prime Minister Manmohan Singh, Deepak Parekh, chairman of the HDFC board and Nikolaus von Bomhard, CEO, Munich Re Group, will sign a joint declaration in New Delhi today.

"I am convinced that ERGO will bring the vast insurance expertise, top-quality technical and operational know-how that made the ERGO Insurance Group a leading player in Germany and Europe to the joint venture company," Parekh said.

Bomhard said, "We believe that HDFC and ERGO are a perfect fit. Both will benefit from the ongoing growth of the Indian insurance market."