Mumbai: HDFC Life Insurance Co. Ltd and Max Life Insurance Co. Ltd have carved out a new structure for their proposed merger after the Insurance Regulatory and Development Authority of India (Irda) rejected the original three-step union, said two people with knowledge of the discussions.
The two firms have decided to extend the deadline for completing the merger, they said, declining to be identified citing the sensitivity of the discussions. Meanwhile, HDFC Life has also informally asked its bankers to start preparing for an initial public offering (IPO). The deadline for the original merger plan expires on 30 June. HDFC Life and Max spokespersons did not respond to emails seeking comment.
The first step of the original plan involved the merger of Max Life with Max Financial Services. However, Section 35 of the Insurance Act prohibits the merger of an insurance company with a non-insurance company. The new structure is much simpler, the people cited above said.
“The new structure is something that satisfies Section 35 of the insurance norms, is in compliance with Sebi regulations and in accordance with the existing taxation norms. We can’t share anything more than this at this stage. Once a decision on the merger (under the new structure) is taken, we will inform the exchanges and will be in a better position to explain the new route planned for the merger,” said the first of the two people cited earlier.
However, the two firms are yet to sign a new merger agreement, which will then have to get fresh shareholder approval, besides approvals from Irda, the Securities and Exchange Board of India (Sebi) and the Competition Commission of India.
Since the new amalgamation scheme may take up 12-18 months to be completed even if the new structure is approved, HDFC Life will continue working on its listing plans and announce an IPO when the market is suitable, these people said.
“Within the next few weeks, possibly within a month, we will have clarity on whether we will work on the merger under the new structure and finish it first, or we would go for HDFC Life’s IPO first and then work on the merger,” said the first of the two people cited earlier.
Separately, two other people confirmed that HDFC Life has informally sounded out investment banks for the IPO.
“HDFC Life had hired investment banks for the IPO in May last year. They have been informally sounded off by HDFC Life to resume working on the IPO even as the companies explore all possible options that would withstand regulatory scrutiny,” said one of these people.
“HDFC Life had initially targeted the end of 2016 to bring its IPO but later put listing plans on hold as discussions with Max Life began for the merger which would have led to automatic listing,” said the second person.“A fresh listing for HDFC Life is not expected to take more than six months.”