The country’s third largest private lender Axis Bank on Tuesday, proposed to raise its stake in the country’s fourth-largest private life insurer Max Life Insurance from about 1.5% to 30% through an all-cash deal worth around ₹1,600 crore, two people directly aware of the matter confirmed the size of the deal.
Two persons directly aware of the deal confirmed about the size of the deal.
The latest deal, once consummated, will value Max Life Insurance at around ₹5,667 crore. At this valuation, the stake sale by Max Life will be at a steep discount of about 60% to its present market value. This is because the current market value of Max Financial Services Ltd., whose entire income comes from Max Life, is around ₹13,000 crore.
“Axis Bank’s stake will be in Max Life. But if one considers Max Financial Services and Max Life as one entity since the holding company represents only Max Life business, Axis is essentially paying around ₹200 per share of Max Financial Services,” said the first person.
At the Max Life level, Axis Bank is likely to be paying around ₹28.61 per share of Max Life to buy 30% in the insurer, said a third person aware of the deal.
At the subsidiary level too, Max Life is selling stake at a steep discount because in the last deal in March, Mitsui Sumitomo Insurance (which holds 25.5% in Max Life) agreed to swap its Max Life shares with shares of Max Financial, stating that Mitsui Sumitomo will value Max Life shares at Rs. 108 apiece.
Max Financial Services stock closed up 5.14% at ₹475.80 per share on BSE on Tuesday, after the Max Life announced their strategic 70:30 joint-venture partnership with Axis Bank.
Currently, Max Financial Services holds a 72.5% in Max Life, Nippon-based Mitsui Sumitomo holds 25.5% and Axis Bank along with a few small investors hold 2%.
“As per the contours of the deal, Mitsui Sumitomo will exit Max Life and come to Max Financial Services. Through a rearrangement of shares, Max Financial Services will eventually end up having its promoter, Analjit Singh’s family, holding at 22.1%, Mitsui Sumitomo will have 21.9% and the rest will be held by public investors,” said the first person.
At present, Mitsui Sumitomo doesn’t hold any stake in Max Financial Services. Analjit Singh, the founder of Max Group, along with his family holds 28.3% in Max Financial Services, while the rest is held by public investors. Post the proposed stake sale, Max Financial Services will be the promoter of Max Life with a 70% holding and Axis Bank will hold 30%.
Axis Bank, so far, has been Max Life’s bancassurance partner. The JV will give Max Life an equal footing with its bigger rivals SBI Life Insurance, ICICI Prudential Life Insurance and HDFC Life Insurance, all of whom have banks as JV partners.
On Tuesday, Axis Bank said it would acquire 556.4 million shares from the listed parent entity Max Financial Services Ltd.
The deal would give Axis Bank the right to nominate three nominee directors on the Max Life board, while Max Financial Services will have the right to nominate four directors.
Max Life’s tag line will be changed to include Axis Bank’s name post the deal, the companies said in a press statement.
The proposed transaction, Axis Bank said in an exchange filing, was intended to create long term value for all shareholders of Max Life. This, the bank said, could be done by working towards a merger of the holding company Max Financial with Max Life.
“Should the merger not be completed by a pre-agreed timeline, the parties have contractually agreed to swap up Axis Bank’s shareholding to Max Financial,” said the release.
Based on the deal arrangement, if the value creation options are not consummated within 63 months of closing the deal, Axis Bank can exercise a put option on Max Financial to sell all its shares in Max Life at a price of ₹294 apiece within nine months of exercise of such put option.
Axis Bank entered into a confidentiality and exclusivity arrangement with Max Life on 20 February, to explore the possibility of a long-term strategic partnership.
On 4 March, Max Financial approved Mitsui Sumitomo Insurance Co. Ltd. to swap its shareholding in Max Life for a stake in the listed entity.
Based on the deal arrangement, Max Financial issued 7.54 crore shares on a preferential basis to the Japanese firm at ₹565.11 apiece for a 21.87% stake in Max Financial, and in turn received 39.48 crore shares, representing 20.57% stake in Max Life, at ₹108.02 per share.
“The deal construct is a win-win for both Max Life Insurance and Axis Bank, as the life insurer gets a dedicated long-term bancassurance partner and Axis Bank gets strategic stake in the insurance business,” said Amit Thawani, head of India coverage and managing director- investment banking at Nomura India.
“The deal sets a precedent for insurers/banks that have similar bancassurance tie-ups or are looking to have strategic stakes in insurance companies,” he added.
For the financial year that ended on 31 March 2020, Max Life earned a total new business premium of ₹5,583.59 crore, the fourth highest in the private life insurance space, according to the Insurance Regulatory and Development Authority of India. All private insurers together recorded a new business premium of ₹80,919.40 crore for fiscal 2020, while state-run Life Insurance Corp. of India earned a new business premium of ₹1.8 trillion.
