German insurance giant ERGO on Thursday announced that it has entered into an agreement with Housing Development Finance Corporation (HDFC) to increase its stake in HDFC ERGO to 49 per cent.

 Under the agreement, ERGO will acquire 12.33 crore shares of HDFC ERGO at a price of ₹90.973 per share, aggregating to ₹1,122 crore. As a result, ERGO’s shareholding in HDFC ERGO will increase to 48.742 per cent from 25.84 per cent, while that of HDFC will come down to 50.732 per cent from 73.634 per cent.

The transaction pegs the valuation of HDFC ERGO at ₹4,900 crore.  The transaction is subject to approvals, including from the Insurance Regulatory and Development Authority of India, Competition Commission of India and Foreign Investment Promotion Board.

For FY 2015, HDFC ERGO had reported a profit of ₹104 crore as against ₹58 crore during the year-ago period.

During the same period, the company had collected gross premium of ₹3,257 crore.

The raise in stake by the German partner in the company is a consequence of the Centre’s passage of the Insurance Amendment Bill, allowing foreign entities to raise their stakes in domestic private sector insurance joint ventures to up to 49 per cent, from the earlier limit of 26 per cent.

Recently, a number of foreign players in the sector have raised stakes in their Indian insurance joint ventures.

These include Nippon in Reliance Life Insurance, AXA in Bharti AXA Life Insurance and Bharti AXA General Insurance, Bupa in Max Bupa Health Insurance, and Sunlife Financial Inc in Birla Sunlife.

In August, HDFC also announced that its British joint venture partner Standard Life will invest ₹1,700 crore in its life insurance firm HDFC Life to raise its stake by 9 per cent.

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