India’s fourth largest private sector bank will become a strategic partner for the life insurance company, with Max Financial eventually owning 70% after a two-stage transaction.
In the secondary share sale transaction, Max Financial Services Ltd will sell 28.6% of the share Max life Insurance for approx. 1,600 crore to Axis Bank, ”said one of the persons on condition of anonymity, as the agreement has not yet been submitted to the company’s boards. The transaction is priced at the book value, I added.
Under the deal, which is likely to be announced shortly, Axis Bank will also have three to four nominees on the board of the Max Life Insurance Co., the other person said. Both parties had signed an exclusivity and confidentiality agreement in February 2020. Axis Bank, which currently owns just under 2% of Max Life Insurance, will increase its share subject to regulatory approvals.
“We are under a confidentiality agreement and will not be able to comment,” a Max group said the spokesman. A spokesman for Axis Bank did not respond to queries.
Max Financial restructured its portfolio of Max Life in March 2020.
Under this scheme Mitsui Sumitomo insurance swapped 20.57% of its stake in Max Life Insurance for a 20.87% stake in Max Financial in a cash-free transaction. Max Financial has the option to buy the remaining 5% stake that Mitsui Sumitomo holds in Max Life Insurance, which will make it $ 804 crore with a portion of the proceeds from stock sales to Axis Bank, the sources said.
The deal puts Axis Bank in the league for other leading private and public sector lenders, such as the HDFC Group, ICICI Bank. Kotak Mahindra Bank and State Bank of India, which holds significant stakes in life insurance companies. The transaction will be subject to approval by the Central Bank, India’s Competition Commission and market and insurance regulators.
“The transaction changes the nature of Axis Bank’s involvement with Max Life Insurance from a pure-play bank assurance partner to a significant shareholder and joint venture partner that will address the uncertainty of the long-term bank assurance partnership for Max Life Insurance,” other person quoted above.
Max Life is currently the largest non-bank owned private life insurance company in India with an embedded value of 10,077 crore and trades at far lower multiples than peers such as SBI Life, HDFC Life and ICICI Life, I added.
At the time of the exclusivity agreement with Max Group, Axis Bank CEO Amitabh Chaudhry had said: “The successful completion of the proposed transaction is expected to create significant value for all stakeholders.”
For Max Life in the first nine months of FY2020, the property and bank assurance channels showed strong growth of 22% and 20%, respectively. The value of new business in the first nine months of FY20 was £ 576 crore, up 24% year-over-year. Total first-year premium increased 19% to Rs 3,693 crore. Renewal premiums increased 11% to 6188 crore.
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