HDFC, Max Financial In Spotlight After Merger Of Life Insurance Business

Proposed Transaction creates a Rs 255 Bn annual premium company1, with scale, differentiated portfolio and wider reach to expand in a growing life insurance sector.

Further, the merged insurance entity will be paying a non-compete fee to the promoter group of Max Financial Services as a part of the proposed transaction, the statement said.

Moving a step closer to form the country's biggest private sector life insurer, the board of HDFC on Monday approved the merger of Max Life and Max Financial Services with its insurance arm HDFC Standard Life Insurance Company.

Max Financial Services shares slid as much as 5 per cent in morning trade on Tuesday despite the company reported 335.62 per cent rise in net profit at Rs 107.12 crore for the quarter ended June 30, 2016 against Rs 24.59 crore in the same quarter a year ago.

Analjit Singh, Founder & Chairman Emeritus of Max Group said "Max Life and HDFC Life have complementary strengths which would make this merger hugely beneficial for all stakeholders including customers, employees, distribution partners and investors". The announcement was made after market hours. In an interview to Shilpa Ranipeta of BTVI, HDFC Life managing director and CEO Amitabh Chaudhry says the transaction is expected to be completed in the next 12-15 months and 30-40 days after that we could expect the listing of the merged entity.

According to HDFC Life, the merged life insurance company will pay a non-compete fee to the promoter group of Max Financial Services.

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Current sponsors of Max Financial will own 6.6 percent of the merged entity, while Japan's Mitsui Sumitomo Insurance Co. which now owns a stake in Max Life will get about 7.5 percent of the combined entity. HDFC Life is a material subsidiary of the HDFC. The insurance business will then be merged with HDFC Life, which would become a listed entity.

What would the merger mean for HDFC Life? Ltd as India's largest private insurer. Max Life is one of the best paymasters in the insurance sector. There has also been a non-compete fee that has agreed upon, which is Rs 501 crore that would be paid upfront for a period of four years. This will be followed by three equal installments totaling Rs349 crore.

The merger initially involves the amalgamation of Max Life with Max Financial Services. HDFC holds 61.65% and UK-based Standard Life 35% of the insurer; minority shareholders hold the remaining. The shares of HDFC Life are proposed to be listed on BSE and the National Stock Exchange of India (NSE) as a outcome of the scheme. Analjit Singh and his group will get 6.7 per cent and MFSI 7.8 per cent.

Vanessa Coleman