Leading rating agency CARE today said that life insurance companies instead of general insurers would hit the capital markets earlier and that the market would witness a number of insurance IPOs before March 31 next.
CARE, the agency which grades IPOs based on companies' fundamentals, said insurance IPOs would be better than expected as the sector has a tremendous potential though it went through a bad phase during the Sebi-IRDA tussle over the sale of unit-linked insurance plans.
"Life insurers would be the first to hit the capital markets instead of general insurance companies. We can see some IPOs happening before March 31 next. This is a very good time for the insurance companies," CARE Ratings' Deputy Managing Director Rajesh Mokashi told PTI here today.
While there are around 22 life insurance companies functioning in India, about 4-5 will be among the first to list on the bourses. Of the 4-5, Reliance Life Insurance is more likely to go for an IPO followed by ICICI Prudential and HDFC Life Insurance, analysts said.
Asked about the impact of the upcoming IPO norms for the insurance sector, Mokashi said, "the new IPO norms are expected soon. However, we do not expect the IPO guidelines to be an hindrance and some level of dilution will be necessary from the promoters to comply with the minimum public holding for the purpose of an IPO."
According to IRDA, IPO norms for non-life insurers are likely by end-this month, and it is awaiting Sebi approval on guidelines for life insurance companies soon.
Currently, most of the 22 private life insurers and 17 non-life players have foreign partners and the Insurance Act caps foreign direct investment at 26 per cent.
As per the Insurance Act, promoters having a 26 per cent stake can off-load equity after 10-years of operation. The legislation also empowers the Government to reduce the mandatory period.
When asked about what would be the average ticket size of the expected IPOs, Mokashi said, "the life insurance industry is very capital-intensive and requires capital infusion at frequent intervals. Given this background of rapidly-growing life companies and their corresponding requirement of capital given the requirement to maintain minimum solvency margin of 150 per cent, we expect the IPO size to be in the range of around Rs 800-1,000 crore, especially looking at the embedded valuations."
Embedded value is a way to value insurance business. It is the current value that is estimated for future profits of a life insurance company, he said, adding that the first four IPOs are likely to mop up around Rs 4,000 crore from the capital markets.
