Yes Bank co-founder Rana Kapoor’s family office is in negotiations to buy a large stake from the Burman family of DaburNSE -0.18 % in its life insurance joint venture with Aviva, said people with knowledge of the matter.
Parallel negotiations are going on with IndusInd Bank, the former bancassurance partner of the venture, to come on board as a strategically, they said, adding that a valuation exercise has been initiated.
Both the Kapoor family office and IndusInd denied that talks were on with the Burmans. Two people familiar with the development said the discussions on behalf of the seller were being led by Aviva.
If the Burmans get a good price, they are open to exiting the lossmaking venture entirely, said at least three independent sources, thereby ending their 18-year-old association with the British insurer. A senior management team from Aviva’s London office was in India last month to discuss the matter, said one of the persons.
The Burman family holds the stake through its investment vehicle Dabur Invest Corp.
Originally a 26:74 alliance, Aviva Plc acquired an additional 23% stake in Aviva Life Insurance from Dabur Invest Corp for Rs 940 crore in May 2016, taking the UK company’s stake to 49% at a Rs 4,087-crore valuation. With losses mounting, most peg the Burman family stake at Rs 1,000-1,200 crore.
The Insurance Laws (Amendment) Act passed in 2015 allows up to 49% foreign direct investment (FDI) in insurance companies in India. Previously, only 26% FDI was allowed in the insurance sector.
STRATEGIC REVIEW OF INDIA CONTINUES: AVIVA
Aviva Life Insurance Co. India Ltd chairman Mohit Burman declined to comment.
“Our strategic review of India continues,” said an Aviva global spokesperson. “It’s a market where we see attractive dynamics. We are pleased with the progress of the review and will provide an update in due course.”
A spokesperson of Three Sisters, the Kapoor family office, denied that any talks are on. “The Three Sisters Institutional Office is not engaged in any discussions with the Burmans for acquisition of their stake in Dabur Aviva Life Insurance,” she said. Yes Bank’s spokesperson said it has no knowledge of any potential deal.
An IndusInd spokesperson said the lender wasn’t engaged in talks. “IndusInd Bank denies the assertions made in your mail. To set the record straight, the bank has had no discussions with Burman family.”
SLUGGISH LIFE
Aviva was one of the first overseas insurance companies to enter India in 2002 when the sector was liberalised through the joint venture with the Burman family. But after snapping ties with bancassurance partner IndusInd Bank in 2015, business has been sluggish. The company, which has more than 15,000 financial advisors in 107 branches nationwide, had accumulated losses of Rs 1,359 crore on September 30, 2018. Total half-yearly income was Rs 26.25 crore, with losses at Rs 9.24 crore, regulatory filings show. Of the Rs 484 crore total premiums collected, new business premiums were only Rs 88 crore and individual rated premiums stood at Rs 4.95 crore. The book value of the venture is Rs 2,049 crore.
“The embedded value of the venture is around $250-300 million. In India, deals typically get done at around three-four times. But this JV has lost a lot of its earlier sheen. Many ventures are loss making in earlier years to build the franchise but this is still facing headwinds as its scale is negligible. The last three years, the business is on a steady decline,” said an industry veteran on condition of anonymity.
Like many such joint ventures of this vintage, both sides are believed to have an understanding that the Indian partner will get a fixed percentage return on whatever capital it has invested. If a deal is below a pre-agreed floor price, Aviva has to compensate for the differential but if it crosses the ceiling, then Dabur has to pay it back.
THREE SISTERS’ INTERESTS
The Three Sisters family office has identified education, tourism, family entertainment centres and agri-logistics among sectors for investment. The name refers to Kapoor’s three daughters — Radha, Raakhe and Roshini. The family office has already invested $100 million in a variety of ventures since its inception nine years ago.
It owns the master franchise rights for Spanish dry cleaning chain Presto in India, a design school in partnership with New York’s Parsons School of Design, a school of communications started in alliance with advertising giant WPP, a business magazine, and a fintech company. Awfis, a company that runs co-working spaces and was incubated within the family office, recently got an investment of $20 million from Menlo Park-based venture capital investor Sequoia Capital.
It hit the headlines and became the subject of stock exchange queries after allegations that it was running parallel lending or investing business by compromising the interests of Yes Bank surfaced. The bank had denied any dealings with the Three Sisters institutional office.
Private-sector lender IndusInd announced the acquisition of microlender Bharat Financial Inclusion Ltd (formerly SKS Microfinance) in a stock deal in September 2017. Previously, in April 2015, it had acquired the diamond and jewellery financing business and related deposit portfolio of Royal Bank of Scotland NV in India. The size of the portfolio was about Rs 4,100 crore. In 2011, it bought Deutsche Bank’s loss-making credit card business in India for an undisclosed sum. Founded by the London-based billionaire Hinduja brothers, IndusInd commenced operations in 1994. It caters to both retail and corporate customers.
Source: Economic Times