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Rediff.com  » Business » Reliance Life-Nippon deal may be delayed

Reliance Life-Nippon deal may be delayed

March 24, 2011 10:01 IST

Nippon Life's plan to buy a stake in Reliance Life may be delayed as the deal requires special permission from the government.

Under the Insurance Act, a company has to be in operation for at least 10 years before divesting stake. Reliance Life will complete 10 years in January next year.

"Only the government can overrule the law and grant permission," said a source close to the development.

Last week, the Japanese insurance major entered into an agreement to buy a 26 per cent stake in Reliance Life for Rs 3,062 crore (Rs 30.62 billion).

It will be the largest foreign direct investment (FDI) in India's insurance sector.

Reliance Life is a part of Reliance Capital, the financial services arm of the Anil Ambani Group.

"The law says the company has to be 10 years in operation. Reliance Life has approached us and we are examining it," said J Hari Narayan, chairman, Insurance Regulatory Development Authority (Irda).

Industry sources said the regulator was in the process of doing the due diligence, which entailed seeking approval from the Japanese regulator.

After the due diligence, Irda will seek permission from the finance ministry.

"The Act also provides that the government can allow such deals under special circumstances, based on the merit of the case. It will take at least three-four months to complete the routine due diligence. Only then will Irda pass on the file to the government," said an Irda official.

Reliance Capital CEO Sam Ghosh said: "We have discussed the issue with the regulator (Irda), which will approach the central government for guidance."

He added in case the special permission was not granted, the deal would have to wait till January 2012, when Reliance Life completes 10 years.

"Otherwise, it can go ahead with special permission from the central government. We are hopeful the deal will go through. We would like Irda to approve it as soon as possible," Ghosh said.

Nippon Life valued Reliance Life Insurance at around Rs 11,500 crore ($2.5 billion). Nippon Life, Asia's largest private life insurance company, posted a revenue of Rs 3,24,000 crore ($72 billion) and a profit of Rs 11,700 crore ($2.5billion) for the financial year ended March 31, 2010.

At present, most of the 22 private life insurers functioning in India have foreign partners. The Insurance Act caps FDI in insurance companies at 26 per cent.

The Insurance Amendment Bill, pending in Parliament, prescribes increasing this to 49 per cent.

 

Niladri Bhattacharya in Mumbai
Source: