Foreign interest in Metlife set to cross 26 per cent

It's yet another instance of foreign interest in a life insurance company crossing 26 per cent "" the foreign direct investment ceiling for the insurance sector.

GS Strategic Investments, a subsidiary of Goldman Sachs, is buying a 39.36 per cent stake in M Pallonji Enterprises Ltd (MPEL), which owns a 10 per cent stake in Metlife India Insurance Company.

Metlife India is 74 per cent owned by Indian companies and 26 per cent by US-based Metlife. One of the promoters of Metlife India, the M Pallonji group, has agreed to sell a 39.36 per cent stake in its subsidiary MPEL to the Goldman Sachs unit, which indirectly gains a 3.9 per cent interest in Metlife India Insurance Company.

Another M Pallonji group company owns 10 per cent stake in the insurance company. Thus, the direct and indirect foreign holding in Metlife India adds up to 29.9 per cent.

Though FDI in insurance companies is capped at 26 per cent, the Insurance Regulatory and Development Authority (IRDA) does not take into account stakes held by foreign entities in the Indian promoter of an insurance company as long as the stakes are not held by the foreign partner in the insurance company itself.

In the case of ICICI Prudential Life Insurance Company and HDFC Standard Life Insurance Company, the Indian promoters "" ICICI Bank and Housing Development Finance Company (HDFC), respectively "" are 74 per cent owned by foreign shareholders.

Prudential and Standard Life, both UK based, own 26 per cent each in ICICI Prudential Life and HDFC Standard Life.

The effective foreign shareholding in the two life insurance companies "" direct as well as indirect "" is around 80 per cent, considering that Indian shareholders own just over 26 per cent each of the Indian promoters of both ICICI Prudential Life and HDFC Standard Life.

The effective Indian shareholding in these two insurance companies is just about 20 per cent.

IRDA had not allowed Standard Life to have a 26 per cent stake in HDFC Standard Life Insurance as the UK insurer also had a stake in HDFC, the Indian promoter. Standard Life recently raised its stake in HDFC Standard Life to 26 per cent after it sold all its shareholding in HDFC.

An industry source said, "The decision to sell a stake by the M Pallonji group to Goldman Sachs was taken to augment capital flow to Metlife India Insurance Company."

The promoters about a month ago infused Rs 350 crore of capital in Metlife India to take its total paid up capital to Rs 1,230 crore.