Reliance Capital Blog

Reliance Capital, India's Berkshire Hathaway

Wednesday, June 10, 2009

Reliance to test water with insurance IPO

Reliance Capital is planning to become one of the first Indian companies to test the waters of the country's bullish post-election stock market with an initial public offering of its life insurance unit.

The offering of Reliance Life Insurance, part of the group controlled by billionaire industrialist Anil Ambani, would be the first listing of a life insurance or general insurance company in India.

Sam Ghosh, chief executive of Reliance Capital, said: "We are thinking of selling 10 per cent or 26 per cent, either through an IPO only or through an IPO plus a stake sale to a strategic partner."

The move would signal a revival of India's moribund market for equity offerings, which has yielded few offerings since its peak in January last year, when another Anil Ambani-controlled company, Reliance Power, staged the country's largest listing.

Cash-starved Indian companies are hoping the good times are on their way back after the Bombay Stock Exchange's benchmark index surged a record 2,000 points last Monday following the election of a stable government.

The market ended the week up 14 per cent at 13,887.15 points with more gains expected if the Congress party-led government introduces long-awaited reforms in insurance and pensions and revives the privatisation programme for state-owned enterprises.

Reliance Capital bought its life insurance unit four years ago from Australia's AMP and its Indian joint venture partner Sanmar.

Mr Ghosh said Reliance owned 100 per cent of the company, giving it the freedom to sell up to 26 per cent to foreign investors, as permitted by Indian rules on foreign direct investment in the sector.

He did not say how much the company plans to raise from the market but said Reliance Life has total premiums of about $1bn and is the fourth-largest operator in India's life insurance market. It employs 25,000 people and has 150,000 agents.

"This will set a value for what Indian life companies are worth. There are a lot of valuations floating around out there, but now we can let the market decide."

He said the company would appoint an investment bank next week to arrange the listing process, which it expected would take about three months.

On whether the market would remain buoyant enough to support new listings, Mr Ghosh said he expected it to sustain itself at about the present levels.

"Retail investors have enough money that if something good comes along, they will invest," he said.

Reliance Life Plans to Raise Capital

Reliance Life Insurance Co., a unit of Reliance Capital Ltd., is exploring options to raise at least $200 million, joining a stream of Indian companies looking to take advantage of the improving market sentiment and easing liquidity situation.

"We are evaluating all options," Reliance Capital Chief Executive Sam Ghosh told Dow Jones Newswires Friday. "It could be an initial public offer, a strategic investor who could be an overseas insurance firm, a private-equity firm who could be an anchor investor or a combination of all options."

Mr. Ghosh said Reliance Capital is considering selling 10% to 26% of the unit over the next three-four months.

"We will take a decision on the final route to raising capital over the next month to 45 days," he said. "After that we need to gain approval from the insurance-sector regulator and the capital-market regulator."

Current regulations allow foreign entities to own up to a 26% stake in Indian insurance companies. The United Progressive Alliance, which will form the federal government later Friday, is widely expected to hike the limit on foreign direct investment to 49%.

The Reliance Capital unit is among the few life insurers in India which don't have any foreign partners at present.

The businesses of Reliance Capital, part of the Anil Dhirubhai Ambani Group, also include general insurance, asset management, private equity, stock broking, depository services and consumer finance.

Mr. Ghosh said Reliance Life Insurance will need $150 million to $175 million of working capital over the next five years.

An analyst with a foreign brokerage, who asked not to be named citing his company policy, said he had valued Reliance Life Insurance at $1.3 billion but expects a share sale only at a much higher premium to the market price.

"A foreign insurance company making a strategic investment in Reliance Life seems like the best fit but there aren't many big players left who aren't already present in India via a local joint venture," the analyst said. "So the question is who is left to bite."

Among India's private insurance firms, ICICI Prudential is a joint venture between ICICI Bank Ltd. and U.K.'s Prudential PLC, SBI Life Insurance Co. is a joint venture between State Bank of India and France's BNP Paribas Assurance, and Bajaj Allianz Life Insurance Co. is a joint venture between Bajaj Finserv Ltd. and Germany's Allianz SE.

Reliance Capital hikes stake in Network 18 Media

Reliance Capital has increased its stake in electronic media firm Network 18 Media& Investments Ltd to 7.27 per cent for over Rs 40.83 crore
Reliance Capital acquired over 26.75 lakh shares of the media company through open market purchases and allotment on conversion of partly convertible cumulative preference shares and warrants, Network 18 Media& Investments said in a filing with the Bombay Stock Exchange.

This resulted in Reliance Capital owning 52.30 lakh shares of the media company engaged in operating business news television channels, CNBC-TV18 and CNBC Awaaz, it said.

Prior to this latest acquisition, Reliance Capital held over 25.55 lakh equity shares, representing 3.55 per cent stake, of the electronic media firm, it said.

Reliance Capital, a financial services company, has interests in asset management and mutual funds, life and general insurance, private equity and investments and stock broking services.