Private sector lender Axis Bank on Tuesday said it would acquire an additional 29 per cent stake in Max Life Insurance for an estimated price of Rs 1,592 crore, raising its total holding in the life insurer to 30 per cent after the completion of the deal.
Max Financial Services will hold the remaining 70 per cent in the joint venture.
Axis is looking to purchase around 556 million shares of Max Life Insurance at a price of Rs 28.61 per share, but the estimate will change based on the date when the deal is closed. The bank will acquire the shares from Max Financial Services and sign a shareholders’ agreement and a share-purchase agreement.
The boards of Axis Bank and Max Financial Services (MFS) met on April 27 and gave the go-ahead to the deal. This comes after the signing of the confidentiality and exclusivity arrangement on February 20 to explore the possibility of a long-term strategic partnership between Axis and Max Life.
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Currently, MFS owns 72.5 per cent, Mitsui Sumitomo Insurance (MSI) owns 25.5 per cent, and Axis has a minority stake of 2 per cent in Max Life. Of the 2 per cent, Axis will sell 1 per cent to MFS before the deal goes through. Then it will acquire 29 per cent stake in Max Life thereby raising its overall stake to 30 per cent.
MSI is swapping its 20.6 per cent stake in Max Life with 21.9 per cent stake in MFS. And, MFS also plans to purchase MSI’s remaining stake of 4.9 per cent in Max Life.
After the completion of these transactions, Max Life would become a 70:30 joint venture between MFS and Axis. The proposed transactions are subject to approval from corporate and regulatory authorities (including the Insurance Regulatory and Development Authority of India, Reserve Bank of India, and Competition Commission of India), the bank said.
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“We continue to believe in the long-term prospects of India’s under-penetrated life insurance space, the current environment notwithstanding. We see this joint venture creating immense value for our stakeholders, given our long-standing, high-performing partnership with Max Life,” said Amitabh Chaudhry, Axis Bank’s managing director and chief executive officer.
On a call with the media, Chaudhry said the transaction’s impact on Axis Bank’s capital ratio will be 10 basis points and the aim was to build the Axis franchise as a financial service provider. Max Life will include Axis Bank’s name in its tag line.
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The joint venture will significantly improve Max Life’s competitiveness vis-à-vis its rivals, including other private life insurers owned by large banks. In the venture, Max Financial will have the right to nominate four directors on the board of Max Life, and Axis Bank will have the right to nominate three directors. “One nominee director of the promoter group on the board of MFSL shall be a person identified by Axis,” the bank said. The acquisition is expected to be completed in 6-9 months.
“This move is an emphatic signal that Max Life will become an even more formidable player in the Indian life insurance space,” said Analjit Singh, founder & chairman of the Max group.
Axis Bank’s adoption of open architecture had introduced ambiguity in its long-term bancassurance relationship with Max Life. Axis will have more skin in the game with a 30 per cent stake, and, hence, removes the uncertainty, said Prayesh Jain, lead analyst, Institutional Equities, YES Securities.
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Axis Bank, already a bancassurance partner of Max Life Insurance, sells Max Life’s products as a corporate agent. The total premium generated through this has aggregated to over Rs 38,000 crore.
Apart from Axis Bank, Max Life’s bancassurance partners include YES Bank and Lakshmi Vilas Bank. Axis also has similar partnerships with the state-owned Life Insurance Corporation, and Bajaj Allianz Life Insurance Company.