Written & Published in economictimes.indiatimes.com/
MUMBAI: The insurance regulator has sought the opinion of the government’s top law officer, attorney general Mukul Rohatgi, on the legal side of the Max Life-HDFC Life merger plan. The Insurance Regulatory and Development Authority (Irda) had initially rejected the two-way merger in the way the companies had proposed. As per the proposal, Max Financial Services was to be merged with Max Life, followed by a demerger of the life insurance business, which would then be merged with HDFC Life Insurance, creating the most valuable private sector life insurance company at around Rs 70,000 crore based on the agreed commercials and share-swap arrangements.
Shares of HDFC Life would be listed on the stock exchanges post the merger. “We have sought legal opinion on the merger,” said an Irda official. “We have written to the Department of Financial Services, which will take the attorney general’s views through the law ministry.” Section 35 of the Irda Act does not allow merger between an insurance company and a financial services company. There is also no provision under the Insurance Act to merge a financial services company with an insurance company. Irda and the finance ministry didn’t comment. In November 2016, the two companies informed exchanges about reservations raised by Irda to accept the amalgamation in the form they had proposed.
HDFC Life and Max Financial Services had announced the merger in August to create the country’s largest life insurance company with assets under management of over Rs 1.10 lakh crore. In the merged entity, the HDFC group was to own a 42.5% stake, Standard Life 24% and the Max Group 6.6%. Other big shareholders included Mitsui Sumitomo with a 7.8% stake and Axis Bank with 1.2%. “What we can allow is a merger between Max Life and HDFC Life,” said an Irda official.
“They will have to rework the plan, taking Max Financial Services out from the deal.” As per the agreed valuation and exchange ratio, the relative valuation of HDFC Life and Max Life was decided to be 69% and 31%, respectively. Shareholders of Max Life were to get one share of Max Financial Services for every 4.98 shares held in Max Life. Shareholders of Max Financial Services were to get 2.33 shares of HDFC Life for each share held.
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