Reliance Capital Blog

Reliance Capital, India's Berkshire Hathaway

Thursday, October 08, 2009

Reliance Capital expects a government waiver for floating its life insurance venture’s initial public offering (IPO) by November 15, Chief Executive Officer Sam Ghosh said.

“Insurance Regulatory and Development Authority (Irda) disclosure norms are likely to come by October 31. Considering that, we expect the government’s response (to the waiver) by November 15,” said Ghosh.

Irda is in the process of drafting listing norms for insurance companies and is currently talking to the Securities and Exchange Board of India about disclosures that are to be made mandatory for these companies when they tap the equity market.

Reliance Life Insurance Co, which was launched four years ago, has applied for the waiver due to the Irda directive that specifies insurance companies that have Indian promoters with more than 26 per cent stake, can float an IPO only after 10 years of operations.

Sam GhoshReliance Capital acquired AMP Sanmar Life Insurance Co in 2005, which started operations in 2002. So, the two companies together have been in business for seven years.

According to Ghosh, the company is likely to file draft red herring prospectus for the IPO in the first week of January, depending on governmental and regulatory approvals.

The company plans to divest up to 20 per cent stake — 10 per cent via pre-IPO placement and a further 10 per cent by public issue. The company would also consider a strategic sale of up to 20 per cent.

“Strategic sale will not be to more than three partners, including a foreign player,” Ghosh said. In July, Reliance Capital had said it plans to sell partial stake in Reliance Life Insurance “later this year”, subject to regulatory approvals.

Reliance Life Insurance aims to manage assets worth Rs RS 40,000 crore by March 2013, versus Rs 10,000 crore as on September 30, which would make it among the top three private insurance companies in the country. Currently, it is placed sixth among private sector insurers. Its assets are likely to be Rs 15,000 crore by the end of 2009-10 (April-March) and the company expects to double it by March 2012.

From 2005 until September, the company clocked a 240 per cent growth in assets.

“Most of the growth happens in the third and fourth quarters,” Ghosh said.

Reliance Life hopes to break even by 2010-2011, Ghosh said, adding total premiums are expected to be Rs 20,000 crore by March 2012 compared with the Rs 10,000 crore target for the current financial year. The insurer plans to grow organically by floating nine products by March and would focus on health insurance products, he said.

Ghosh expects the insurance industry to grow 15-20 per cent this year and by over 25 per cent in 2010-2011.

Reliance Life looks for overseas partner, plans public issue

After operating without an overseas partner all these years, Anil Ambani group's Reliance Life Insurance is now looking out for an
international strategic partner to hold up to 20 percent stake, apart from planning an initial public offer.

"We have started the process of identifying the strategic investor," said Sam Ghosh, chief executive of Reliance Capital. "The process will take around four months time," Ghosh told IANS in an interview.

"A strategic investor will enable us to discover the right price for our share as we are planning a public issue. From business point of view we do not need an overseas partner. But an overseas life insurer will be a better for our business," he said.

Reliance Life is a subsidiary of Reliance Capital.

The stake offered to a strategic investor depends on the government allowing Reliance Life to go public. The life insurer plans to divest up to 20 percent stake, of which 10 percent will be to the investor before going public.

In case Reliance Life is unable to get a clearance for its initial public offering from the government, then it will consider offering the entire 20 percent stake to the overseas partner, Ghosh explained.

Reliance Life, he said, will need Rs.400 crore ($80 million) as additional capital this year and half of that next year to meet the solvency norms. "There won't be any expense over-run for the company from next year onward. We will break even next fiscal."

Queried about the cap on charges stipulated by the insurance regulator and the impact on business plans, Ghosh said: "Our insurance products are priced properly and profitably to meet the expenses. As such we are not affected by the cap on charges."

Targeting premia of Rs.20,000 crore ($4 billion) in new policies and renewals, Reliance Life also plans to expand its branch network to 1,600 over the next two years from 1,250 branches at present.

For the current year, Reliance Life is confident of earning a total premium of Rs.9,000 crore, with new and renewals contributing equally. "Our plan is to grow our new business annually by 25 percent. Renewal premium will fetch the balance."

According to him, the company is targeting asset under management of Rs.15,000 crore ($1.5 billion) by the end of this year, Rs.40,000 crore ($8 billion) by 2013 from the current levels of Rs.10,000 crore ($2 billion).

"By 2013 we will be one of top life insurers in terms of AUM," he said, adding the focus on the popular unit linked insurance policy (ULIP) will also come down from the current 93 percent to 80 percent, with the balance accounted for by traditional policies.

"Health will be around 4 percent."

Reliance Exchange Next CEO says spot bourse launch on October 17

Reliance Spot Exchange will launch its formal operations with muhurat trading October 17 and will offer trade in steel, said Rajnikant Patel, chief executive officer of Reliance Exchange Next.

Reliance Spot Exchange is the first venture to be started by Reliance Exchange Next, the bourse business vertical under Reliance Capital. “We hope to be in the commodity futures and equity exchange spaces in the next three-five years. But, we have not set a timeline for ourselves as we want to initially concentrate on getting it right with our first venture, which is the commodity spot market business,” Patel said. The exchange’s membership is by invitation and it has already roped in 10 top players in the steel and other allied industries.