Disclosure Norms for Insurer IPO Soon.

A domestic partner diluting its stake and shares buying by FIIs will breach FDI limit. So the issue to raise FDI and FII limit to 49 per cent has to be resolved first
The Insurance Regulatory and Development Authority (Irda) would be releasing the disclosure norms for life insurance companies to launch initial public offerings (IPO) in a month’s time. This will benefit insurers such as ICICI Prudential Life, SBI Life, HDFC Standard Life and Reliance Life as they are keen to go public.

“The disclosure norms for IPO are ready, but there are some legal issues, requiring clarity. For instance, there is no clarity on how should we treat the foreign proportion in cases where shares of the Indian promoter are bought by foreign institutional investors (FIIs),” R Kannan, member of Irda, told Financial Chronicle.

Existing insurance regulations have capped foreign direct investment (FDI) limit at 26 per cent, which also includes FII participation. In case a domestic partner dilutes its stake and shares are bought by FIIs, this would breach the FDI limit. Hence, the issue to raise the FDI plus FII limit to 49 per cent has to be resolved by an amendment to the insurance law.

Shaswat Sharma, a director with KPMG, said, “Raising the FDI to 49 percent would give rise to another issue. Since most foreign joint venture partners have already announced their plans to increase their stake once the FDI is hiked, the domestic partner will have to lower its shareholding to 51 per cent, which could go further down after an IPO. Thus, the Indian partner will become the minority shareholder. Secondly, FIIs will not be able to participate in an IPO and in the secondary market, unless the foreign partner agrees to hold less than 49 per cent stake.”

“Only insurance companies, who are very sure of their future shareholding patterns, would be able to come out with IPO fairly soon. Rest will have to wait till the FDI norms are amended. Another issue is that the Irda Act 1999 states that after 10 years, the maximum stake that an Indian promoter can hold is 26 per cent,” added Sharma.

Speaking about the valuation exercise, Kannan said a valuation actually would be required to do the valuation, which will have to be peer-reviewed. Kannan said as per existing regulations, a life insurance company that has completed 10 years of operation or has made profits continuously for three years, can only launch an IPO.

In October, the Securities and Exchange Board of India (Sebi) approved the recommendations of a joint Sebi- Irda committee on disclosures and accounting standards that companies will have to follow if they are to sell shares to the public through initial public offerings. However the final guidelines with would come from Irda.

Source : mydigitalfc.com