Axis Bank to buy 29% stake in Max Life for Rs 1,592 crore
The deal, which comes during bleak economic times as the country grapples with the impact of COVID-19 pandemic, was struck due to the opportunity in the life insurance space and also the price at which it could be sealed, Axis Bank's managing director and chief executive Amitabh Chaudhry said.
Other large lenders, including HDFC Bank, ICICI Bank and SBI, and also smaller ones have life insurance joint ventures or have promoted companies themselves.
According to experts, banks originate a lot of insurance business and "manufacturing" products is more rewarding than merely selling them.
India's third largest private sector lender Axis Bank, which already has a minor 1 per cent ownership of the insurer, used to sell Max's policies for over a decade, which has seen 19 lakh customers and over Rs 38,000 crore in premium generated, Chaudhry said.
A senior Axis Bank official said the deal includes picking up over 55 crore shares of the insurer at Rs 28.61 per unit, which takes the total deal consideration to Rs 1,592 crore, and underlined that the final figure may wary a bit depending on the date of deal closure.
The deal requires nods from the Reserve Bank, Insurance Regulatory and Development Authority and Competition Commission of India, and will take up to six to nine months to consummate.
When asked about the timing of the deal, Chaudhry defended the move pointing out to the "big opportunity" that is presented by the life insurance sector and the potential for the upside on the investment presented by the price at which it is signed.
It can be noted that the Reserve Bank is pushing lenders not to declare dividends to conserve capital and deploy it for fresh lending, which will be necessary to kickstart the economy once the lockdown ends.
Chaudhry said the Max stake buy will dent its overall capital adequacy, which stood at a comfortable level of over 17 per cent, by only 0.10 per cent.
Max Life Insurance is a part of the listed Max Financial Services Ltd (MFSL), a diversified financial services company.
In a regulatory filing, Max said that the consideration payable by Axis Bank for purchase of the shares shall be arrived basis the valuation of Max Life conducted as per Rule 11UA read with Rule 11UAA of the Income-tax Rules, 1962.
Upon the closing of the deal, MFSL will have the right to nominate four directors on the Max Life board, while Axis Bank will have the right to nominate three directors. One nominee director of the promoter group on the board of MFSL shall be a person identified by Axis Bank.
Chaudhry denied speculation about the stake being raised in the future by the bank, including murmurs of a complete takeover, saying there are no such plans.
At present, products sold through the bank reportedly contribute for 54 per cent of Max Life's revenues. On February 20, a tri-party agreement was signed between Axis, MFSL and Max Life to explore the possibility of a long-term strategic partnership between Axis Bank and Max Life.
At present, MFSL holds 72.5 per cent stake in Max Life and Japan-based Mitsui Sumitomo Insurance (MSI) owns 25.5 per cent stake.
The proposed transaction with Axis Bank follows the ongoing swapping by MSI of 20.6 per cent stake that it holds in Max Life with a 21.9 per cent stake in MFSL, an official statement said.
"MFSL also plans to purchase MSI's balance stake in Max Life. Post completion of the series of transactions, Max Life will become a 70:30 joint venture between MFSL and Axis Bank," it explained.
Against the 30 per cent stake, Axis Bank's name will be included in Max Life's tag line.
It is to be noted that Max Life had made an attempt to merge with HDFC Life in 2017 which failed as they did not receive regulatory approval due to reported complexity of the deal.
Interestingly, the deal was then brokered by the then HDFC Life CEO Amitabh Chaudhry who is now the CEO of Axis Bank.
Following failure of the deal, Max Group made several attempts to sell part of its stake. However, it did not meet success.
MFSL shares gained 5.14 per cent to close at Rs 475.80 apiece on the BSE, while Axis Bank stock surged 6.61 per cent to close at 455.55 per unit, as against gains of 1.17 per cent on the benchmark. AA DP MKJ