South-based lender Federal Bank will be paying over Rs 80 crore to buy additional four per cent stake in its life insurance joint venture IDBI Federal Life Insurance, a top official has said.
The stake buy from the state-run IDBI Bank will take Federal Bank’s stake in the 12-year-old company to 30 per cent, the maximum permissible level for a lender under the regulations,its managing director and chief executive Shyam Srinivasan told PTI.
Without giving targeted timelines, he said IDBI Bank, which holds 48 per cent stake in the venture, will be selling 27 per cent stake in the venture to get its holding down to 21 per cent.
Federal Bank will be purchasing 4 per cent, while their Dutch partner Ageas Insurance International NV will be buying 23 per cent to take its ownership to 49 per cent, the maximum permissible for a foreign partner in a life insurance venture.
IDBI Federal Life Insurance is a joint venture between IDBI Bank, Federal Bank and Ageas, a European insurance company. IDBI bank had 48% equity stake while Ageas and Federal Bank both had 26% stake each in the company.
“The valuations have been decided between partners by appointing third parties. IDBI Bank will reduce either to 25 or 21 per cent depending on whether we buy or not,” he said and added that “we will take our stake to the maximum permissible 30 per cent and it will take about Rs 80-90 crore for the 4 per cent stake.”
At the lower-end of the valuation hinted by Srinivasan, the total valuation of the insurer will come at about Rs 2,000 crore. Srinivasan said it is a good investment for the bank which can reap in benefits later but declined to answer whether they are looking at an eventual listing of the venture.
"The board of Federal Bank on 20 April 2020 has approved in principle to purchase additional stake of up to 4 per cent in the equity capital of IDBI Federal Life Insurance Co (IFLIC) from IDBI Bank," Federal Bank said in a filing to the Bombay Stock Exchange.
The indicative time period for completion of the acquisition is 6 months. The bank, however, did not disclose the financial transaction involved in the deal. "Cost of acquisition or the price at which the shares are acquired is yet to be decided," the regulatory filing said.
The company has a good presence in the market and such a deal will be beneficial for all the stakeholders, he said.
It can be noted that the transactions have been triggered primarily by life insurance behemoth LIC buying a majority stake in IDBI Bank last year, due to which the lender is reducing its 48 per cent stake in the venture.
Srinivasan said the bank is presently in a capital conservation mode wherein it is looking at ways of conserving money, but stressed that increasing the stake is a good bet from a future perspective and also added that the amount to be invested at over Rs 80 crore is “considerably low”.