Foreign firms may have to cut stake in insurance JVs

Foreign partners may have to dilute their stake in insurance joint ventures on listing to abide by the government diktat that all listed companies must have 25 per cent public shareholding.

"We want Indian promoters to have a minimum 51 per cent stake in insurance companies. It is for the government to decide on disinvestment and take a call on raising the foreign direct investment limit to 49 per cent. Foreign partners will have to reduce their stake if the government sticks to the 25 per cent public shareholding norm," said a senior official with the Insurance Regulatory and Development Authority.

The government had last week hinted that it was open to a review of the 25 per cent public shareholding norm, but as of now, the rules remain in force.

Indian partners own 74 per cent in insurance JVs, while foreign partners own the rest. FDI would be raised to 49 per cent after the Insurance Amendment Bill, cleared by a parliamentary Standing Committee and pending before the Parliament, comes into force.

According to the Insurance Act, companies can tap the public market after they complete 10 years of operations. The insurance regulator is working out the modalities of the initial public offer. The regulator has suggested to the standing committee that both partners dilute stake proportionally after they go public.

As life insurance is a capital intensive business, insurers have been trying to tap the public market. The government had earlier thought of bringing down the minimum term for listing from 10 years to five years. However, it later decided to delete that section from the Act and allow insurers to go public at any stage. This is also a part of the Insurance Amendment Bill.

HDFC Standard Life and ICICI Prudential will complete their 10 year of operations in the next few months. Irda is waiting for amendment to the Act before it comes out with the IPO norms. There is an inter-regulatory subcommittee regarding this, including members of the market regulator, Securities and Exchange Board of India, and Irda.

Reliance Life was the first insurance company to show interest in listing to raise resource. The company is completely owned by Anil Dhirubhai Ambani Group.

Industry experts said some companies such as Tata AIG, Reliance Life, Shriram Life and ING Vysya Life Insurance would welcome the government's move on 25 per cent public shareholding, as their foreign partners were either looking to dilute stakes in their Indian joint ventures or they were 100 per cent owned by an Indian promoter.

Most foreign partners had expressed their willingness to increase their shareholding in their joint ventures as and when the regulations allowed. Insurers like Bajaj Allianz had even fixed the price at which it would increase its stake.