As the Cabinet clears Insurance Bill, that is to hike composite Foreign Equity Cap to 49%, the Rs 60,000 crore Shriram Group's Life and General Insurance companies are gearing up to dilute 23% stake each to the South African financial group Sanlam.
In life insurance alone the stake is valued at around Rs 500 crore.
Shriram's life and non-life insurance ventures were originally floated along with Sanlam, but later Sanlam's holding was transferred to Shriram Capital as part of restructuring, in which the South African Conglomerate picked up 26% stake for Rs 1,600 crore.
Shriram Capital is the holding company of Shriram's Group's Rs 60,000 crore finance businesses including two NBFCs, insurance ventures, chit funds and others.
Now with the Cabinet's nod for foreign investors to pick up 49% stake, Sanlam is all set to acquire stake directly in both the companies. Once the stake is acquired, Sanlam will hold 23% directly and another 26% indirectly, through Shriram Capital, in both life and non-life companies of Shriram.
Industry sources said current valuation of Shriram Life is around Rs 2,000 crore and Sanlam is expected to infuse around Rs 500 crore for the 23% stake in the life insurance venture.
Manoj Kumar Jain, CEO and Wholetime Director, Shriram Life Insurance has confirmed the development, however he declined to comment on the valuations.
"As per our original agreement with Sanlam, when the Government allows foreign partners to increase stake, Sanlam will increase immediately," said Jain, who welcomed Government's decision stating that this will drive the sentiment and lots of liquidity will be new insurance companies to expand the business, for which they are scouting for capital. "This will be an oxygen for them."
In response to Business Standard's query, Sanlam said it’s shareholding in the Shriram insurance businesses is currently held indirectly via its effective shareholding in Shriram Capital Limited.
"If Regulations are changed to increase the limit placed on foreign ownership of insurance companies, SEM will consider increasing its effective stake in the Shriram insurance businesses. This may be achieved through a combination of an increased stake in Shriram Capital Limited and/or direct stakes in the Shriram insurance businesses," said Sanlam in an email response.
On the benefits for Shriram, he said, "the company is not in need of capital, the stake dilution is to meet our obligation and what we have committed to Sanlam," Jain.
He noted, Shriram Life's solvency ratio is at around 6.1% as compared to 1.5%, according to the norm.
Shriram Life in 2013-14 clocked GWP of Rs 590 crore and reported a profit of Rs 86 crore. The company is looking at 20% growth during the current fiscal as far as GWP concerned. To support the target, the company is targeting to increase its branches by 10% every year. At present the company has 414 branches across the country.
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