Go Digit General Insurance’s board has approved a plan to merge its holding company, Go Digit Infoworks Services, with the listed insurer. This will be the first time an insurance company has merged with a non-insurance holding company after recent changes to insurance laws allowed such deals.
Speaking on a conference call, Kamesh Goyal, Chairman of Go Digit General Insurance Limited, said the aim of the merger was to create a direct alignment between the insurance company and its promoters and to move to a leaner corporate structure. He said the promoter shareholding in the general insurance company would rise by only 0.03%, mainly due to the issuance of shares worth about Rs 43 crore at a price of Rs 375.1 per share. He added that this price was at a premium to the market value of around Rs 341–Rs 342 on the day of the announcement, December 19.
He added that the merger would not lead to any changes in how the company is run.
“We had also mentioned that from a perspective of board of the General Insurance Company, the management team, everything stays as it is,” he said.
ToI had reported citing a stock exchange filing that the insurer said its board had approved a scheme of amalgamation under Sections 230 to 232 of the Companies Act. The merger will require approvals from shareholders, creditors and regulators, including the Insurance Regulatory and Development Authority of India, the Securities and Exchange Board of India, the stock exchanges and the National Company Law Tribunal.
Under the scheme, Go Digit Infoworks Services, the unlisted holding company, will be merged into the listed insurance business.
The insurer said the merger will remove the holding company layer and directly link shareholders with the insurance business. It said the move will reduce compliance and administrative costs and is in line with the regulator’s push for simpler holding structures in the insurance sector.
No cash will be paid under the scheme. Shareholders of the holding company will receive equity shares in the insurer based on a fixed exchange ratio. The new shares will be issued at Rs 375.1 per share, which is at a premium to the current market price. After the merger, promoter shareholding will rise slightly to 72.2% from 72.17% on a fully diluted basis, an increase of about 0.03%. The exchange ratio is based on a valuation report, and a fairness opinion has also been obtained.
On the conference call, Goyal said the company’s solvency stood at about 226% as of September 30, based on published data. He said this meant the insurer did not need to raise capital. He added that the additional shares worth Rs 43 crore being issued accounted for only about 1% of the company’s net worth and would not make any meaningful difference to its overall capital position.
He said the company does not see any need to raise additional capital in the near future. Goyal also said that, under existing rules, up to 50% of the company’s net worth can be raised through Tier 2 bonds or debentures if required.
