Amitabh Chaudhry, MD and CEO at HDFC Life, in an interview with Chirag Madia shares his views on the issue of HDFC Life-Max Life merger. He says HDFC Life and Max Life remain committed to the merger and are evaluating various options including listing of HDFC Life. It has been nearly a year the HDFC-Max merger was announced, but why is it stuck?
The deal was announced in August last year and at that time we had envisaged a particular structure for the deal. We thought that the structure passes the muster of the Insurance Act, we had even taken legal opinions from various people and all of them thought it was okay. But when the Insurance Regulatory and Development Authority of India (Irdai) started evaluating the proposal, they sent it to the solicitor general (SG) and unexpectedly SG pointed that under Section 35 of Insurance Act 1938, one insurance company can merge only with another insurance company. Our structure involved an insurance company merging with a financial company. Basically, our deal involved Max Life Insurance merging with Max Financial Services (MFS). Then the insurance business of MFS would be spun off and merged with HDFC Life. The telecom liability and some other businesses of Max Financial Services would be sold to Max India. But, SG gave the opinion that the merger cannot be allowed, as an insurance company is being merged with a non-insurance company.
I think this section empowers the regulator to approve merger of insurance companies. Under the scheme of arrangement, you should not look inside the scheme and access every step. But SG looked at every step and acted accordingly. Irdai has reaffirmed its original position regarding Section 35 of the Insurance Act, 1938. HDFC Life and Max Life remain committed to the merger and are evaluating various options.
What are your views on the insurance regulator denying the permission for the proposed merger between HDFC Life and Max Life?
The concern raised by the regulator is related to a very technical interpretation of Section 35 of the Insurance Act. The regulator has already reiterated its stand on the matter. Thus, there is no merit in debating it. We are evaluating multiple options.
What are the alternative plan for the existing merger proposal? Do you plan to list HDFC Life?
There are a few options before us. One is that we go to the regulator and look whether something can be done in the current structure and we need to close that chapter in a defined time period. Secondly, we need to find an alternative deal structure which passes various regulatory hurdles. Any structure we decide on takes some time to satisfy all the conditions. Ideally, this will take another 12-15 months.
Another alternative is that we say the deal is too complicated and we go away from the deal. Finally, another option is HDFC Life does an IPO, and that is of more certainty than merger. Later we can follow it up with the merger with Max Life. We have not yet decided what the structure would be, what the sequence would be and how we have to convince each and every shareholder of Max Life and Max Financial Services.
If you decide to list HDFC Life, how much time will it take to hit the market and what stake sale are you looking at?
We did some preliminary work last year and we can build on that. Now that ICICI Prudential Life is listed, we know what regulators are expecting in documents of that nature. So, it should be not more than 4-5 months from the day we decide HDFC Life to list. Regarding the stake sale, we need to do minimum 10% according to the Sebi rules. In last May, when we had announced the IPO, we said that we will do 10% of IPO and all of it will come from HDFC at that point of time. The details of the IPO will depend on the preference of our shareholders and are yet to be discussed.
There has been intense competition among top private players such as SBI Life, ICICI Prudential Life, Bajaj Allianz and HDFC Life for the number one position. How do you plan to tackle the competition?
Some of the players are very focused on top line, but our focus is not just aligned to being the number one so far as top line is concerned. We would like to be number one in matrices such as top line, margins, quality of business, etc. So are we dying to be number one in top line, the answer is clearly ‘no’. For us, top line is an important part of the game, but it’s not the only factor that drives us. Having said that, we continue to invest and are investing in couple of channels and we expect them to start growing. Online channels have seen very good growth, our direct channel will grow quite rapidly and we have started re-investing in our agency channel in a big way. We are using the margins we are making and re-investing in the business. We are quite hopeful about the future of industry as well as HDFC Life.