The retail lending arm of Hero MotoCorp Ltd, Hero FinCorp is in talks to buy Reliance General Insurance (RGI) owned by Reliance Capital at ₹5,500- 6,000 crore vlauation. This comes as Anil Ambani continues to deleverage his group balance sheet.
This is part of Reliance Capital’s efforts to reduce its Rs 18,000 crore debt. With the sale proceeds of general insurance and mutual fund businesses, it expects to bring down debt to Rs 9,000 crore. Reliance General Insurance is a 100% owned subsidiary of Reliance Capital.
Reliance Capital did not comment on the story.
“The quality of our general insurance business is top class, and we are presently in exclusive discussions covered by a NDA (non-disclosure agreement) with a strategic buyer, and cannot comment further,” Reliance Capital chairman Anil Ambani had said in an interview to ET earlier this week.
TALKS FOCUSSED ON A TOTAL SALE
Even though Reliance was initially looking at divesting a 49% stake in the business, the talks are now focussed on a total sale. But it is not clear if Ambani would keep a small minority stake and stay on as a junior partner.
The due diligence process is ongoing, added the people mentioned above. The strategic sale may also gain precedence over IPO plans. Reliance General Insurance had filed for a share sale in February after the deadline for its previous IPO plan lapsed.
Hero FinCorp, which has ChrysCapital as one of its financial backers, has parallelly initiated a fund-raising exercise by mandating Credit Suisse.
The company said it does not want to comment on market speculation.
Hero had unsuccessfully tried to tie up with Ergo for a life insurance company licence. Last year, Hero Enterprise entered insurance broking business to sell life and general insurance products and distribute products to their manufacturing and automobile segment.
Hero has been scouting for opportunities across the financial services sector for growth. Recently, Blackstone pipped it at the last minute to acquire Aadhar Housing from the Wadhawan Group. Hero is also believed to be in discussions with Kishore Biyani for his stake in Future Generali and Max Bupa.
As on November 2018, Hero Fin-Corp had an asset under management of Rs 17,400 crore. It has capital adequacy of 18.3% till last year. Its portfolio grew at a CAGR of 64% during FY2015-18 with most of the expansion coming from segments outside the parent’s ecosystem. The company has expanded its portfolio from bill discounting and two-wheeler financing to include loan against property, small and medium enterprises financing, personal and used car loans. During FY18, the company reported a profit after tax of Rs 162.5 crore on a total asset base of Rs 13,747.6 crore.
Among the fastest growing NBFCs, Hero FinCorp is led by Abhimanyu Munjal, the younger son of late Raman Munjal, elder brother of Pawan Munjal. Abhimanyu’s elder brother Rahul Munjal runs Hero Renewable Energies Pvt. Ltd. These businesses are seen as the New Delhi-based group’s attempts to diversify into other fast-growing businesses to accommodate third generation family members in the group’s business. Incorporated in December 1991 as Hero Honda Fin-Lease Ltd, the Hero Group restructuring led to its present form. Currently it is present in close to 2,000 retail financing touch-points across Hero MotoCorp’s network.
Reliance Capital’s share price has fallen to Rs 130 from Rs 230 since January 1— a drop of 43% — due to crisis in the NBFC sector and company’s indebtedness. Two of its subsidiaries — Reliance Home Finance and Reliance Commercial Finance — have defaulted on debt obligations. Rating agencies have downgraded Reliance Capital citing delay in disinvestment, fructification of deal and depletion of liquidity. The NBFC sector is affected by IL&FS defaults and is facing liquidity crisis.
Last year, the company grew 22.31% to Rs 6,191 crore, faster than the market growth of 12.91%. The company has a market share of 3.64% in terms of gross written premium. It has reported profit of Rs 165 crore in 2017-18.
Gross written premium for FY18 stood at Rs 5,122 crore, up 28% from the previous year. RGI had over 130 branches and 29,600 agents as of March 2018. The insurer’s combined ratio — claims paid versus premiums collected — improved to 106% in the September quarter from 109% in the year earlier.
Private equity investors have been buying stakes in both life and health insurance businesses, seeking to take advantage of a potentially massive market in the world’s second-most populous country. Apart from that, the Indian government wants to ensure health cover for people belonging to economically weaker sections of the society who find it difficult to pay for the treatment they need.
Recently, True North bought 51% stake in Max Bupa. Safecrop Holdings—a consortium of WestBridge AIF, Rakesh Jhunjhunwala and Madison Capital — has acquired Star Health & Allied Insurance Co. Similarly, Warburg Pincus purchased a stake in IndiaFirst Life Insurance and ICICI Lombard General Insurance.
The general insurance industry has grown at 16-17% over the last 10 years and is attracting strategic as well as private equity investors. Many companies are open to the idea of merging or getting a new partner to achieve scale and grow further.
The general insurance arm of the company had filed for a share sale in February after the deadline for its previous Rs 1,500-2,000-crore IPO plan lapsed.