HDFC Life opts for IPO after IRDA red-flags merger with Max

The board of HDFC Standard Life Insurance Co Ltd (HDFC Life), a joint venture between mortgage lender HDFC Ltd and UK-based Standard Life Plc, has decided to go for an initial public offer after the merger proposal with Max Financial Services failed to get regulatory approval.

The Insurance Regulatory and Development Authority of India (IRDAI) had expressed reservations on the proposed merger of the life insurance businesses of Analjit Singh-promoted Max Financial Services Ltd and mortgage lender HDFC, the firms separately disclosed to stock exchanges.

The merger would have created India's largest private-sector life insurer, with annual premium worth Rs25,500 core, surpassing ICICI Prudential Life Insurance Co Ltd.

HDFC Standard Life informed the stock exchanges that its shareholders failed to agree on a plan of merger with billionaire Analjit Singh-promoted Max Financial Services Ltd that would meet regulatory approvals.

The firm's board instead passed a resolution enabling an offer for sale of up to 20 per cent of shares in HDFC Life. The board of HDFC Life, however, did not rule out a future merger with Max Life though it was not specific about a timeline.

HDFC owns 61.65 per cent and Standard Life 35 per cent of the insurer while minority shareholders hold the remaining. A merger with Max Life would proportionately reduce stakes of the two partners in the merged entity.

HDFC Standard Life had originally planned a public listing of its shares to raise capital. Subsequently, it started exploring a merger of its insurance business with Max Financial. They, however, failed to get the approval of the Insurance Regulatory and Development Authority of India (IRDA) for the amalgamation.

''If Max Life and ourselves are able to obtain all necessary regulatory approvals, HDFC Life board and its promoters would be willing to re-evaluate the option of a merger with Max Life in due course,'' it said.

IRDA had, in November last year, expressed reservations over a possible merger, citing lack of provisions for such an amalgamation under the proposed terms and conditions.

After IRDA raised objections, both the companies said they would file a revised merger structure with the insurance regulator.

HDFC Life board is reported to have considered a revised proposal at its board meeting on Monday, which, according to Mint, involved creating a separate insurance entity, tentatively named as HDFC Plus, which would have to secure a fresh licence from IRDA.

''At present, no structure prior to an IPO of HDFC Life has been identified which satisfies shareholders' requirements,'' the company said on Monday.

For the present, HDFC Life is going ahead with its public listing and has hired merchant banks Morgan Stanley and Credit Suisse to arrange the listing at the earliest.

The original merger proposal involved a tiered merger of initially amalgamating Max Life and Max Financial. The life insurance unit will then be demerged into HDFC Life while Max Financial will be merged into another listed company of the Max group – Max India.