DHFL, Prudential consider exiting life insurance JV
Crisis-ridden Dewan Housing Finance and US-based financial services major Prudential Financial are looking to sell their respective stakes in the domestic life insurance joint venture, DHFL Pramerica Life Insurance Company.
The move by Dewan Housing Finance is part of promoter Wadhawan Global Capital’s efforts to exit non-core businesses to ease the stress in the group’s flagship lending business, DHFL, due to a surge in borrowing costs and plunge in its share prices.
DHFL holds 51 per cent and Prudential owns the rest in DHFL Pramerica. Both the promoters are likely to sell their stakes to a domestic firm, though it is not clear if they would make a joint exit.
In response to an ET query, a Prudential Financial spokesperson said, “Along with DHFL, we are evaluating strategic options for the joint venture.” An email query to Wadhawan Global did not elicit a response.
In December, Pramerica Financial, the asset management arm of Prudential, said it would buy out DHFL’s stake in the mutual fund business.
In the life insurance joint venture, foreign direct investment rules do not allow Prudential to increase its stake beyond the existing 49 per cent. DHFL’s decision to exit the business, and FDI norms on insurance ownership, could have prompted Prudential to consider selling out, said a person familiar with the matter.
DHFL Pramerica Life Insurance manages assets worth Rs 4,310 crore, and has more than 100 branches across the country.
DHFL is likely to meet on Tuesday to decide on the valuations of the possible deal. “The valuation of the insurance arm is yet to be finalised. There is a meeting on Tuesday to determine a figure,” said a person familiar with the matter.
The valuation could be 2.5-3.5 times the embedded value of the firm. The embedded value (EV) of a life insurance company is the present value of future profits added with adjusted net asset value. Financial statements of the past eight years would be the basis for the valuation, said the source.
Wadhawan Global is on an asset pruning spree. After selling Aadhar Housing Finance late last week, the holding company of the financial services group is keen to push the stake sale of the life insurance business. Wadhawan has also set the ball rolling on exiting Andromeda Sales and Distribution, one of the country’s largest loan distributors.
The proposed sale of Andromeda is in the early stages, said another person familiar with the matter. Wadhawan is likely to negotiate for Rs 250 crore for the loan distribution business, the person said.
On Monday, DHFL shares rose 4.2 per cent to Rs 116.10 after Wadhawan Global’s chairman Kapil Wadhawan told investors and analysts in a conference call that it plans to sell more non-core businesses. Rating company CARE on Sunday cut the ratings on about Rs 1.2 lakh crore of bonds and loans.
In reaction to the ratings downgrade, mutual funds holding DHFL’s debt securities would soon have to mark down the value of their holdings. A recent Credit Suisse report said that DHFL is among the largest borrowers from mutual funds and the aggregate exposure of debt mutual funds to the home financier’s securities is Rs 8,500 crore.
The move by Dewan Housing Finance is part of promoter Wadhawan Global Capital’s efforts to exit non-core businesses to ease the stress in the group’s flagship lending business, DHFL, due to a surge in borrowing costs and plunge in its share prices.
DHFL holds 51 per cent and Prudential owns the rest in DHFL Pramerica. Both the promoters are likely to sell their stakes to a domestic firm, though it is not clear if they would make a joint exit.
In response to an ET query, a Prudential Financial spokesperson said, “Along with DHFL, we are evaluating strategic options for the joint venture.” An email query to Wadhawan Global did not elicit a response.
In December, Pramerica Financial, the asset management arm of Prudential, said it would buy out DHFL’s stake in the mutual fund business.
In the life insurance joint venture, foreign direct investment rules do not allow Prudential to increase its stake beyond the existing 49 per cent. DHFL’s decision to exit the business, and FDI norms on insurance ownership, could have prompted Prudential to consider selling out, said a person familiar with the matter.
DHFL Pramerica Life Insurance manages assets worth Rs 4,310 crore, and has more than 100 branches across the country.
DHFL is likely to meet on Tuesday to decide on the valuations of the possible deal. “The valuation of the insurance arm is yet to be finalised. There is a meeting on Tuesday to determine a figure,” said a person familiar with the matter.
The valuation could be 2.5-3.5 times the embedded value of the firm. The embedded value (EV) of a life insurance company is the present value of future profits added with adjusted net asset value. Financial statements of the past eight years would be the basis for the valuation, said the source.
Wadhawan Global is on an asset pruning spree. After selling Aadhar Housing Finance late last week, the holding company of the financial services group is keen to push the stake sale of the life insurance business. Wadhawan has also set the ball rolling on exiting Andromeda Sales and Distribution, one of the country’s largest loan distributors.
The proposed sale of Andromeda is in the early stages, said another person familiar with the matter. Wadhawan is likely to negotiate for Rs 250 crore for the loan distribution business, the person said.
On Monday, DHFL shares rose 4.2 per cent to Rs 116.10 after Wadhawan Global’s chairman Kapil Wadhawan told investors and analysts in a conference call that it plans to sell more non-core businesses. Rating company CARE on Sunday cut the ratings on about Rs 1.2 lakh crore of bonds and loans.
In reaction to the ratings downgrade, mutual funds holding DHFL’s debt securities would soon have to mark down the value of their holdings. A recent Credit Suisse report said that DHFL is among the largest borrowers from mutual funds and the aggregate exposure of debt mutual funds to the home financier’s securities is Rs 8,500 crore.
