SBI Life sells 3.9% stake to KKR, Temasek; deal values company at Rs 46,000 crore

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MUMBAI: Buyout firm KKR & Co and Singapore’s Temasek Holdings will buy 3.9% of SBI Life Insurance for Rs 1,800 crore, pegging its value at Rs 46,000 crore, exceeding that of rival ICICI Prudential.

The transaction, which puts SBI Life on course for a stock exchange listing in about a year, sets the benchmark for further private deals and establishes a distinction between businesses that depend on coverage premiums and those that focus on unit-linked insurance plans, which don’t yield as much valuation.

State Bank of India said its board approved the divestment of 39 million shares in SBI Life at Rs 460 apiece, subject to all regulatory approvals, in a stock exchange filing on Friday. The deal multiple is pegged at 3.54 times. ET had reported on December 5 that KKR was among the bidders looking to acquire up to 10% of the insurer.

SBI Life sells 3.9% stake to KKR, Temasek; deal values company at Rs 46,000 crore

The company is a joint venture between State Bank of India (SBI), the country’s biggest lender, and BNP Paribas Cardif. After the deal, SBI’s stake will drop to 70.1% from 74% while BNP Paribas will continue to hold 26%.

The stake-sale process started in October. The French partner has the option of raising its stake to 36%, but hasn’t taken a decision on this yet, it is understood.

“SBI has sold its stake to private equity investors KKR and Temasek to realise some part of its investment and this will also set benchmark for future offers,” said SBI Life MD Arijit Basu.

The protection element in SBI Life’s portfolio is about 8%, whereas the industry norm is 2-5%.

“Margins are almost double in protection, which results in better valuation,” said Basu. “We are looking to grow it to 10% by the end of this financial year.”

As the fastest-growing life insurance company in the industry, SBI Life’s individual retail business expanded 50% this year. The company had a market share of 20.6% in annual premium equivalent (APE) basis at the end of November in private sector and posted a profit of Rs 482 crore in the September quarter.

SBI Life was the first of the life insurance companies started after the sector was opened up in 2000 to report a profit in 2005. It has the lowest expense management ratio among its peers of less than 9%.

“The franchise of SBI Life, its dominant position in life insurance sector, growth potential and superior performance were the key triggers for investors’ interest and hence the premium valuation,” said Kaushal Shah, associate director at Kotak Investment Banking.

SBI Life has a share capital of Rs 1,000 crore and at the end of March, it had an embedded value — the sum of net asset value and present value of future profits — of Rs 13,000 crore.

ICICI Prudential Life is valued at Rs 42,291 crore. Max Financial Services, which owns Max Life, is valued at Rs 14,518 crore. However, once the proposed merger of HDFC Life and Max Life goes through, the merged entity would top the list at Rs 67,000 crore.