Mukesh Ambani-led Reliance Industries Ltd on Friday announced its entry into the insurance sector. The country's largest private sector company, along with its associate, Reliance Industrial Infrastructure Ltd, has decided to acquire Bharti Enterprise's entire 74 per cent stake in Bharti Axa Life Insurance Co and Bharti AXA General Insurance Co Ltd. The value of the proposed deal was not disclosed.
“This transaction is subject to negotiation and obtaining necessary approvals from IRDA,” said a press statement.
On completion of the transaction, RIL and RIIL would effectively own 57 per cent and 17 per cent respectively in both insurance companies. AXA would retain its current 26 per cent shareholding and continue to manage the day-to-day operations of the joint venture. The current management of the two insurance companies will be retained, according to sources.
The deal has an in-built option by which AXA would acquire from RIL and RIIL up to 24 per cent shareholding in both the insurance companies as and when the FDI regulations permit such holding. At present, FDI norms allow foreign entities to hold only up to 26 per cent stake in the insurance sector. Upon exercise of such option, RIL's holding will come down to 45 per cent and RIIL will effectively own 5 per cent; AXA's stake will increase to 50 per cent in both the insurance companies.
Bharti Axa Life has been struggling with a market share of only 1 per cent. In fiscal year 2011, Bharti AXA Life collected premiums of Rs 790 crore. The company has 140 branches across the country but for more than one year no new branch has been opened. Bharti AXA GI collected gross direct premiums of Rs 550 crore and incurred a loss of Rs 170 crore.
Bharti said that the decision to exit the insurance sector was aimed at focusing its energies and financial resources on the telecom sector. “Currently, the financial services ventures do not fit into Bharti's long term growth plans. Bharti intends to use the proceeds from selling off its interests in these joint ventures towards other group businesses in India and abroad,” said a statement.
Bharti had entered into these joint ventures with the AXA Group in 2006 as part of a strategy to move beyond telecom. But the Sunil Mittal-promoted group has not had much success in any of the other areas so far, including retail. Bharti is also in the process of offloading its stake in its joint venture with AXA for asset management.
For Mukesh Ambani-led Reliance Industries, the move allows it make further inroads into the financial services sector in direct competition to the insurance ventures of brother Anil Ambani Group.