Japan’s Nippon Life, which has a 49% stake in Reliance Nippon Life Insurance Company (RNLIC), has initiated discussions with Birla Sun Life Insurance for a possible merger.
The talks were initiated after RCap’s administrator invited bids for the 51% stake in RNLIC. Nippon Life has categorically mentioned that it had no plans to sell its 49% stake in RNLIC.
A merger with Birla Sun Life Insurance, an Aditya Birla group company, would enable the joint firm to bid for debt-laden Reliance Capital’s (RCap) 51% stake being held in RNLIC. Nippon Life is looking at a possible merger with Birla Sun Life Insurance after Birla group acquires a majority stake in the former Anil Ambani group company, sources close to the development said.
A Birla Group spokesperson did not respond to queries on Monday.
The merger between the two entities is necessary because the Insurance Regulatory and Development Authority (IRDAI) guidelines do not permit both Indian and foreign companies to hold in excess of 10% stake in more than one insurance arm.
Canadian billionaire investor, Prem Watsa’s Fairfax, had to cut its stake in ICICI Lombard significantly after he became a significant shareholder in Digit Insurance’s holding company. He eventually exited ICICI Lombard in 2019.
Birla Sun Life’s talks are now hovering around the relative valuation of the two companies, with Birla Sun Life being valued at about Rs 10,000 crore and RNLIC pegged at about Rs 5,000 crore. Birla Sun Life was the latest entrant to bid for RNLIC through RCap’s resolution process. The deadline to submit final bids ended on October 31.
If the merger happens, the Japanese firm’s stake will fall to below 15% in the merged entity, one of the sources said.
According to the initial talks, the merged company would have representatives from three firms – Aditya Birla Group, Canada’s Sun Life and Nippon Life.
Earlier in October, Nippon Life had sent a letter to RCap’s insolvency administrator after its Committee of Creditors (CoC) approved Aditya Birla Capital’s proposal to bid for RNLIC, a firm that did not get any bids initially during the insolvency process.
In the letter, Nippon Life had also conveyed its intention to rope in a strategic partner to acquire RCap’s stake in RNLIC, even as it was exploring partnership options with others, including Gujarat-based Torrent Group.
According to sources, Nippon Life does not want another insurance company to acquire RCap’s stake, which would mean it would become a minority partner in the firm on completion of the insolvency process.
In case Aditya Birla Capital winning the bid to acquire RCap’s 51% stake in RNLIC, it will have to merge the acquired company into its own insurance venture. This will make Nippon Life a minority partner in the merged entity.