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Irdai denies permission to proposed Max- HDFC Life Insurance merger

LiveMint logoLiveMint 08-06-2017 Deborshi Chaki

Mumbai: The Insurance Regulatory and Development Authority of India ( Irdai) has denied permission to the proposed merger of Max Life Insurance Co. Ltd and HDFC Standard Life Insurance Co. Ltd (HDFC Life), saying the current structure of the deal violates Section 35 of the Insurance Act, 1938, which bars the merger of an insurance company with a non-insurance firm.

In separate filings to the stock exchanges on Thursday both Max and HDFC Life said on that Irdai has reaffirmed its earlier position on the deal, in its current structure, following which both companies are exploring other options.

“Further to the representations made to IRDAI, the IRDAI has on June 7, 2017, the authority has reaffirmed its original position regarding Section 35 of the Insurance Act, 1938. HDFC Life and Max Life remain committed to the merger and are evaluating various options,” Max India Ltd informed the exchanges on Thursday morning.

“HDFC Life and Max Life remain committed to the merger and are evaluating various options,” HDFC Life said in a separate statement.

According to two people directly aware of the discussions, both companies have begun reworking the structure of the deal.

“One option could be to directly merge Max Life with HDFC Life but these are mere options as of now and no final decision has been taken,” the second person said, on the condition of anonymity. “But the companies are waiting for the official word,” the person said.

HDFC Life and Max Life had announced their merger plans in August last year through a three-step merger process under which Max Life will first merge with its parent company Max Financial Services, then the life insurance business will be de-merged from Max Financial and merged into HDFC Life. The transaction would have led to automatic listing of HDFC Life through a reverse merger process. HDFC Life would hold a majority stake in the combined entity.

In November, however, Irdai referred the deal to the Union law ministry after raising concerns that the current structure of the deal was in violation of Section 35 of Insurance Act, which does not allow merger of an insurance firm with a non-insurance firm. The law ministry, in turn, sought an opinion from attorney general of India Mukul Rohatgi.

As per the original scheme of arrangement, the deadline for Irdai’s approval was to end in June, while that for court approval in February 2018. The people cited above said both companies will now seek a fresh deadline once a new structure is finalized.

The potential merger is expected to create India’s largest private sector life insurer, second only to state-run Life Insurance Corp. of India.

HDFC Life is, meanwhile, also looking into the possibility of listing alone, Amitabh Chaudhry, managing director and chief executive officer of HDFC Life, told ET Now in a recent interview. “IPO is a definite possibility and we cannot keep waiting forever to just get the merger through. We are at least six to eight months behind as nothing much has happened since November when the issue was raised on the structure,” he told the television channel in May.

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