Insurance Australia Group may raise stake in SBI Insurance Co
MUMBAI: Insurance Australia Group (IAG) is likely to raise its stake in SBI General Insurance Company to 49%, which could fetch SBI more than Rs 1,000 crore. The stake sale could help the State Bank of India (SBI) improve its capital cushion as the government holds on to its purse strings in capitalising banks.
“IAG has exercised its dial-up option,” said a senior SBI General Insurance official. “Now, much of it will depend on whether they will take a commercial call.” ‘Dial-up option’ refers to the right to exercise a call within the time frame stipulated in its JV MoU, which IAG has done now.
SBI has started the process and will soon appoint a valuer to decide on the price of the shares in the general insurance company. In 2009, SBI had entered into a joint venture agreement with IAG for its general insurance business. IAG currently owns 26% of SBI General Insurance, with SBI holding 74%.
At the time of entering the joint venture, IAG had paid Rs 542 crore for a 26% stake in the general insurance company to partner with the country’s largest lender. Of this, Rs 500 crore was the premium for the JV. SBI had made initial investment of over Rs 100 crore as capital.
Given that the company has set up a huge distribution network and has been in operation for eight years, analysts expect the joint venture to fetch more than the last time.
“The share sale can fetch SBI around Rs 1,000 crore from the general insurance venture,” said a partner with a consultancy firm. SBI General has presence in 17,274 branches of SBI and 10 Regional Rural Banks. The company has a robust multi-distribution model which includes bancassurance, agency, broking & retail direct channels.
“When IAG came in, the joint venture did not have a proven track record. Today, it has created its distribution network and has been in business for years. The valuation will definitely be higher than last time,” the official said.
“IAG has exercised its dial-up option,” said a senior SBI General Insurance official. “Now, much of it will depend on whether they will take a commercial call.” ‘Dial-up option’ refers to the right to exercise a call within the time frame stipulated in its JV MoU, which IAG has done now.
SBI has started the process and will soon appoint a valuer to decide on the price of the shares in the general insurance company. In 2009, SBI had entered into a joint venture agreement with IAG for its general insurance business. IAG currently owns 26% of SBI General Insurance, with SBI holding 74%.
At the time of entering the joint venture, IAG had paid Rs 542 crore for a 26% stake in the general insurance company to partner with the country’s largest lender. Of this, Rs 500 crore was the premium for the JV. SBI had made initial investment of over Rs 100 crore as capital.
Given that the company has set up a huge distribution network and has been in operation for eight years, analysts expect the joint venture to fetch more than the last time.
“The share sale can fetch SBI around Rs 1,000 crore from the general insurance venture,” said a partner with a consultancy firm. SBI General has presence in 17,274 branches of SBI and 10 Regional Rural Banks. The company has a robust multi-distribution model which includes bancassurance, agency, broking & retail direct channels.
“When IAG came in, the joint venture did not have a proven track record. Today, it has created its distribution network and has been in business for years. The valuation will definitely be higher than last time,” the official said.
