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The deal between Zurich Insurance Company and Kotak General Insurance could help Hinduja-led IIHL raise the valuation of Reliance Capital, which it acquired under the insolvency process.
The Zurich deal values Kotak General Insurance at ₹7,943 crore on a post-money basis. Kotak General Insurance has a Gross Written Premium (GWP) of . ₹1,148 crore and a networth of ₹341 crore, as on March 31, 2023, which values the general insurance business at seven times of its GWP and 21 times of its net worth.
On the other hand, Reliance General Insurance, which is a 100 per cent subsidiary of Reliance Capital, has a GWP of ₹ 10,339 crore and a networth of ₹ 2,575 crore, as on March 31, 2023.
New funding plan
According to banking sources the same valuation formula would peg the current valuation of RGIC in the range of ₹ 53,000 crore to ₹ 72,000 crore. Indusind International Holdings, a Hinduja group holding company, is paying ₹ 9,600 crore for the acquisition of Reliance Capital group.
“The Kotak-Zurich deal shows the investor interest in the general insurance space. This could help Hindujas raise funds required to acquire RCap,” said a banking source.
The Hinduja Group, which is set to take over Reliance Capital, is reworking its resolution funding plan after the insurance regulator disallowed pledging shares of the insurance subsidiaries to infuse capital.
Regulatory hurdles
Hinduja Group submitted its resolution plan for RCap to the NCLT in July 2023. It had proposed and sought approval for change in control of the ownership, and creation of pledge over the shares of Reliance General Insurance and Reliance Nippon Life Insurance, to raise funds from investors.
In a letter to the RCap administrator dated October 18, 2023, IRDAI said that as per the existing framework investment in insurance companies can only be made out of “own funds”. “Investment in the insurance companies out of borrowed funds is not permitted,” the regulator said as per the letter accessed by businessline.
“With regard to creation of pledge, it is to reiterate that no pledge or any other kind of encumbrance/charge shall be created over the shares of insurance companies without prior written approval of the IRDAI,” it added.
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