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HDFC Life, Max prepare new merger structure after IRDA rejection

LiveMint logoLiveMint 12-07-2017 Anirudh Laskar

Mumbai: HDFC Life Insurance Co. Ltd and Max Life Insurance Co. Ltd have extended the deadline for the merger talks till 31 July and are working on a new merger structure after the insurance regulator ejected the original three-step union, said two people with knowledge of the discussions.

The board of HDFC Life, meeting on 17 July, will consider this new structure, they said on condition of anonymity.

Under the new structure, Max Life and HDFC Life will merge to form a new company, tentatively called HDFC Plus. This new company will then incorporate a new subsidiary to which it will transfer the insurance business.

This effectively means HDFC Plus will become a holding company for the insurance business and be free to merge with the listed Max Financial Services (after it spins off its residual non-insurance businesses).

This structure sidesteps the insurance regulator’s objection to an insurance company merging with a non-insurer, which was the first step of the original plan. The catch: When the new subsidiary is formed, it will have to apply for a fresh licence from the Insurance Regulatory and Development Authority of India (Irdai).

“Within this month end the two companies will take a final decision whether to work on the merger as per the new structure or not,” said one of the two people cited above.

The original deadline expired on 30 June.

If the board of HDFC Life approves the new scheme and it is supported by the board of Max Life as well, the two companies will submit a fresh scheme of amalgamation to Irdai, which will lead to automatic listing of HDFC Life.

However, if the boards of two life insurance companies do not agree on the new merger structure before 31 July, the merger talks are likely to be shelved for the time being and HDFC Life will go for an initial public offering (IPO) first, putting off the merger as a future option, the two people quoted above said.

HDFC Life had appointed merchant bankers around a year ago. Mint had reported on 26 June that the firm had informally asked the bankers to start preparing for an IPO even as it explored options to salvage the merger with Max.

HDFC Life officials did not comment on the development.

Replying to an email from Mint, a Max Life spokesperson said, “We would have to decline to respond currently due to the confidentiality agreement.”

In January, Irdai had refused to approve the merger as per the original structure—which envisaged Max Life merging with Max Financial as the first step—citing a possible breach of norms under section 35 of the Insurance Act, which states that under a scheme of merger or amalgamation, an insurance company can merge with another insurance company, and not a non-insurance company.

The new structure will have new swap ratios and could take a further 12-18 months as the firms will have to submit it for another round of regulatory approvals from Competition Commission of India, Irdai, the Securities and Exchange Board of India (Sebi) and a high court.

The merger, if it goes through, will create India’s largest private-sector insurer.

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