Stocks of insurance companies gain currency in grey-market trades

Off-market trading volumes driven by hopes of listing, recent deal action, say dealers

The shares of a number of insurance companies are increasingly changing hands in off-market transactions. A mix of recent deal action and hope of listing is driving volumes, say dealers in unlisted securities.

Grey market estimates suggest for each of the companies, 1.5-3 million shares have been granted under employee stock ownership plans (Esops). Of this, about 10 per cent is estimated to be floating stock, which is in public hands and sees transactions.

The grey market refers to an informal network for buying and selling of shares belonging to companies which are not listed on stock exchanges. Such networks do not have the regulatory oversight that the regular stock exchanges would have.

Enquiries on transactions have been heard of by dealers from Kolkata to Rajkot and Chennai, say dealers in unlisted securities.

Sandip Ginodia, proprietor of Abhishek Securities, a Kolkata-based dealer in unlisted shares, said shares were freely available in only a handful of insurance companies. "All three (ICICI Lombard General Insurance, ICICI Prudential Life Insurance and HDFC Standard Life Insurance Company) have employees selling the shares they got through the Esop route. Generally, share transactions are in the range of 2,000-5,000 shares per lot, with high net worth individuals emerging major buyers," he said.

According to estimates by two different dealers, the price of an ICICI Lombard General Insurance share was Rs 125-185 and ICICI Prudential Life Insurance Rs 205-265, while the price for shares of HDFC Standard Life Insurance Company was Rs 135-175. As such, the total value of the shares with the employees of the three companies is about Rs 100 crore.

The scarcity of shares of insurance companies and the perceived opportunity in the sector has resulted in increased volumes of share transactions in off-market deals. Shares are sold by employees converting Esops. High net worth individuals, who are willing to wait 5-10 years for listing, are the main ones snapping up the shares, say intermediaries.

Vipul Gandhi, owner of Rajkot-based Gandhi Associates, which deals in unlisted shares, said a number of insurance companies had seen big-ticket stake sales in recent times, including HDFC Standard Life Insurance and Royal Sundaram Alliance Insurance. In December, HDFC had announced the Azim Premji Trust would buy 0.95 per cent stake in HDFC Standard Life for Rs 198.9 crore, while in February, Sundaram Finance announced it would purchase UK-based RSA Group's 26 per cent stake in its insurance company, Royal Sundaram Alliance Insurance, for Rs 450 crore. Besides, the UK's Bupa group has announced it will increase its stake in Max Bupa Health Insurance from 26 per cent to 49 per cent.

With such activity, investors were betting on the fact that there would be some movement towards an initial public offering in the insurance space, Gandhi said. "Individuals and some institutions are also involved in trades. There is hope they will look at listing."

For now, transactions are limited to north India, though there have been enquiries in the South as well.

"Transactions have been limited. It has not happened so much here, but prospects for companies may be good in the long term," said Dilip Surana, proprietor of Chennai-based Strides Financial Services.

HDFC Standard Life declined to comment. Emails sent to the other two insurance companies did not receive replies.

Uptick in insurance company trades: 

• Increased gray market activity in unlisted insurance stocks 
• Action seen in ICICI Lombard, ICICI Prudential and HDFC Standard Life shares 
• Recent deal activity and listing hopes driving trades 
• Gray market estimate suggests that 1.5 to 2 million shares granted for each of the companies under ESOP route
• 10% in public hands and see transactions, says gray market estimate