HDFC Life to proceed with IPO

Shelving merger plan with Max for now; up to 20% of equity to be offered for sale

In a board meeting on Monday, HDFC Standard Life Insurance Company decided to list its shares through an Initial Public Offer (IPO).

The public issuance would be an offer for sale by HDFC, the parent company, and UK-based Standard Life, which holds 35 per cent stake. HDFC has told the stock exchanges a maximum of 20 per cent equity capital of HDFC Life would be offered for sale in the IPO. The ratio of equity dilution by HDFC and Standard Life is not known at the moment.

Analysts estimates had recently pegged the value of HDFC Life at Rs 32,000 crore. At this number, the IPO size could be about Rs 6,000 crore.

The Insurance Regulatory and Development Authority of India (Irdai) did not give a go-ahead to an HDFC Life-Max Life merger in the form it was proposed about a year before. After that, it appears HDFC Life and Standard Life worked on an alternative structure. On June 7, Standard Life expressed apprehension on whether any new structure for the proposed merger would be viable or not, and stated its intent to propose an IPO of HDFC Life at the earliest opportunity.

Experts suggest that with pressure from its UK partner, HDFC Life was left with limited options. "The merger proposed last year would have been an extremely complex structure, making it tough for Standard Life to monetise on its investment in HDFC Life in an appropriate manner," says a source in the know.

After Monday's board meet, HDFC Life told the exchanges that no structure prior to an IPO had been identified which satisfied the shareholders' requirements. It added that if Max Life and HDFC Life were able to obtain the necessary regulatory approvals, the HDFC Life board and its promoters would be willing to again valuate that option of a merger.

With life and general insurers queuing for the IPO route, it would be interesting to see how quickly HDFC Life progresses on this. HDFC Life earned revenue of Rs 22,191 crore and its profit before tax stood at Rs 1,061 crore in FY17. This was 23.6 per cent and 5.3 per cent growth, respectively, over the previous year.

HDFC Life's year-to-date individual annualised premium equivalent had expanded by 23 per cent to Rs 686.6 crore, according to an Edelweiss Research report. Its market share had, however, slipped from 8.3 per cent a year before to 6.7 per cent as on end-June, though it remained at fourth position in the life insurance business.

Stocks of HDFC and Max Financial Services traded flat on Monday, to close at Rs 1,651.8 and Rs 599.2, respectively, on the BSE.