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IRDA has made public the draft listing guidelines for insurance
companies. The draft guidelines are in line with expectations and we
expect most large insurance companies (ICICI/HDFC/SBI/Kotak) to
meet the financial requirements by FY12. Post finalization of the
guidelines, we believe an increase in FDI limits to 49% from 26%
currently would one of the biggest impediments for public issue, as
most foreign JV partners already own a 26% stake. Key highlights:
Public issue only after completion of 10 years of operation: ICICI
Pru, HDFC insurance, SBI Life and Birla Life have completed 10 years
of operation. Reliance Life will complete 10 years of operation only by
Jan-12 and, according to the Reliance Capital management, it is awaiting
regulatory approval for an exception for the Nippon deal. After the 4Q
FY11 Reliance Capital conference call, we had highlighted that there
could be delays in consummation of the deal, which we see as the
biggest potential catalyst for Reliance Capital’s stock performance.
Embedded value at least twice of paid up capital: Apart from the
number of years of operation, IRDA has introduced the financial
condition of EV being at least 2x paid up capital. IRDA is still to propose
specifics for EV calculations and also clarity is needed on whether paidup capital includes a share premium or not. Our EV estimates based on
discounting past NBAP show that most large insurers (ex Reliance Life)
either meet that threshold currently or will meet the requirement over
FY12 given limited additional capital requirement going forward. This
proposed regulation applies to listing and would not be applicable to
strategic/financial stake sales including the Reliance-Nippon deal.
Other highlights: (1) Formal approval is required from the IRDA
before filing for the issue of share capital with SEBI. (2) EV and NBAP
disclosures would be required, but disclosure details on these two are yet
to be finalized by IRDA. (3) The applicant must have maintained
required solvency ratios for at least six quarters preceding the
application.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IRDA has made public the draft listing guidelines for insurance
companies. The draft guidelines are in line with expectations and we
expect most large insurance companies (ICICI/HDFC/SBI/Kotak) to
meet the financial requirements by FY12. Post finalization of the
guidelines, we believe an increase in FDI limits to 49% from 26%
currently would one of the biggest impediments for public issue, as
most foreign JV partners already own a 26% stake. Key highlights:
Public issue only after completion of 10 years of operation: ICICI
Pru, HDFC insurance, SBI Life and Birla Life have completed 10 years
of operation. Reliance Life will complete 10 years of operation only by
Jan-12 and, according to the Reliance Capital management, it is awaiting
regulatory approval for an exception for the Nippon deal. After the 4Q
FY11 Reliance Capital conference call, we had highlighted that there
could be delays in consummation of the deal, which we see as the
biggest potential catalyst for Reliance Capital’s stock performance.
Embedded value at least twice of paid up capital: Apart from the
number of years of operation, IRDA has introduced the financial
condition of EV being at least 2x paid up capital. IRDA is still to propose
specifics for EV calculations and also clarity is needed on whether paidup capital includes a share premium or not. Our EV estimates based on
discounting past NBAP show that most large insurers (ex Reliance Life)
either meet that threshold currently or will meet the requirement over
FY12 given limited additional capital requirement going forward. This
proposed regulation applies to listing and would not be applicable to
strategic/financial stake sales including the Reliance-Nippon deal.
Other highlights: (1) Formal approval is required from the IRDA
before filing for the issue of share capital with SEBI. (2) EV and NBAP
disclosures would be required, but disclosure details on these two are yet
to be finalized by IRDA. (3) The applicant must have maintained
required solvency ratios for at least six quarters preceding the
application.
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