IPOs take a breather as PEs help insurers raise funds

Rising interest among private equity players to purchase stake in insurance companies may have solved the funding gap and also provided an exit to investors. This has also meant that insurers do not necessarily need to hit the market to raise capital.

Apart from Warburg Pincus, players like Singapore's GIC, KKR, Temasek, PremjiInvest and Carlyle are among firms who are looking to play a larger role in the insurance sector by acquiring stake in companies.

State Bank of India, which was planning an initial public offering (IPO) of its general insurance arm SBI General Insurance, said it is no longer looking to get listed. Chairman Rajnish Kumar said i shelved its IPO plan since there is no need for capital.

The initial plan was for SBI General was to be listed on the stock exchanges in FY21. Meanwhile, JV partner IAG is looking to exit the venture, and several private equity players have made a beeline to buy its 26 percent stake in the venture.

"It is a welcome change that the insurance regulator had allowed PEs to become promoters of companies. They come with a higher capacity to invest and hence companies need not necessarily opt for an IPO," said the BFSI head of a large consulting firm.

He added that two players, one life and one general insurer, were exploring a listing to raise capital. But these companies are now in talks with PEs for capital infusion. Considering that the equity market is also volatile, he added that PE funds are now more sought after.

Earlier this year, private equity investor True North announced that it will buy Max India's 51 percent stake in Max Bupa Health Insurance for Rs 511 crore.

As per a Bain & Company report, India remained a hotbed for dealmaking in 2018. Investment momentum was robust for a second consecutive year, with total investment of $26.3 billion from about 793 deals during the year.

The report said consumer technology and BFSI remain the largest sectors for investment by value, and contributed about 40 percent of the total deal value in the year.

Among other insurers, Warburg Pincus holds 26 percent stake in IndiaFirst Life Insurance.

In 2018, a consortium of investor Rakesh Jhunjhunwala along with WestBridge AIF and Madison Capital won the race to acquire Star Health Insurance.

Insurance Regulatory and Development Authority of India (IRDAI) had in 2017 allowed PE/VC firms to become promoters of insurance companies with a five year lock-in period through a special purpose vehicle (SPV).

With the rush for capital amid several public sector banks looking to exit the sector, sources said that PEs are putting tough conditions on the promised capital, including how much funds they would commit and its proportion to the actual business growth in topline and bottomline.

Loss-making segments within an insurer are also facing closer scrutiny by PEs.

Unlike existing relationships, once PE/VCs enter the insurance space as promoters, they are mandated to commit additional capital as and when it is needed.