Thursday 15 January 2015

Max India heading for split, insurance and healthcare units to be made separate companies

The Economic Times

NEW DELHI: Max India, the flagship company of New Delhi-based serial entrepreneur Analjit Singh, may be split into three divisions —insurance, healthcare and specialty films — with holding companies being created for each of them, two people familiar with the development said. These may then be listed at a later date in a bid to unlock value in the separate businesses, they said. 

Singh, the founding promoter of Hutchison Max (now Vodafone India), owns a 74% stake in each of two insurance ventures —Max Life Insurance and Max Bupa Health Insurance — and 46% in Max Healthcare, which runs hospitals. Max India has a market value of Rs 10,676 crore. "Since the intrinsic value of the (individual divisions) is significantly higher, they will be listed separately on the Indian bourses that will have the ability to attract long-term investors, having special interest in these businesses," said one of the persons cited above. 

A Max India spokesperson declined to comment. Max India's investment and finance committee is examining options, and the proposed structure is expected to be approved in a board meeting scheduled at the end of this month. "Besides unlocking value for the shareholders, one of the key reasons for demerging these businesses is that each of these had gone through hiccups in initial phases and has now turned around,'' said the second person cited above. 

"None of them needs any fresh capital from the promoter Max India and the only venture that is still burning cash is Max Bupa Health Insurance, a joint venture with British health insurance major Bupa, which decided to increase its ownership to 49% last week from the present 26%." This follows an ordinance lifting the cap on overseas investment in insurance to that level. 

"The fresh infusion from Bupa would give enough breathing space for the JV to turn profitable," the person said. Under the plan, Max India will park its stake in Max Life Insurance and Max Bupa Health Insurance in a holding company that will be listed on the bourses. The shareholding pattern in this holding entity will be similar to that of Max India, in which Analjit Singh and his family own 40.5%, with the remaining 59.5% being held by the public. 

With regard to Max Healthcare, Max India will transfer its 46% ownership to another holding firm that will be listed. The specialty films division that contributes about Rs 800 crore of revenue to Max India will be retained by the parent. It had earlier entered into a pact to sell the unit to Germany-based Treofan for Rs 540 crore. 

The deal proposed in September 2012 was called off in six months as the German company withdrew. In April 2012, Japanese insurance company Mitsui Sumitomo Insurance (MSI) bought out US-based New York Life's 26% stake in Max New York Life Insurance for Rs 2,731 crore. "At this price, the insurance JV was valued at Rs 10,504 crore," said one of the two persons. 

That put Max India's 74% stake in the insurance unit at Rs 7,775 crore three years ago, he said. In July 2014, South African hospital chain Life Healthcare decided to increase its stake in Max Healthcare to 46.5% from 26% for about Rs 800 crore. 

At this price, the hospital chain was being valued at about Rs 4,000 crore and the Max India's stake at around Rs 1,800 crore. Analjit Singh and his family will eventually hold a 40.5% stake in each of the three listed firms — Max India, the insurance holding company and the healthcare holding compan

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