Max India to split into three to unlock value in insurance

New Delhi: Diversified Max India will split into three separate listed companies to “unlock value” in insurance businesses, a move that comes within a month of government raising FDI limit in the insurance sector.max india insurance

Through a demerger, the group will have three separate business verticals — Max Financial Services for life insurance; Max India Ltd for health care, health insurance & allied businesses; and Max Ventures and Industries Ltd for manufacturing activities.

Besides, Max’s clinical research business will be divested to a Canadian company for $1.5 million.

Max India promoter and chairman Analjit Singh said foreign partners, Mitsui and Bupa, have expressed interest in raising their stakes in life insurance venture and health insurance company to 49 percent.

Upon demerger, Max Bupa and Max Healthcare hospital chain would be part of new vertical Max India Ltd.

‘Max Financial Services Ltd’ would focus solely on flagship life insurance business through its 72.1 percent stake in Max Life, making it the first Indian listed company exclusively focused on life insurance, the company said in a statement after a board meeting today.

The company said the ordinance has “created renewed investor interest in the life insurance sector”.

“The new government is setting a rapid pace for economic reforms. This structural reconfiguration readies us to capitalise on opportunities created by the anticipated all round growth acceleration and to henceforth look at the wider world of business opportunities,” Singh told reporters in New Delhi.

He also announced his intention to make voluntary open offer to buy up to an additional 34.5 per cent stake in Max Ventures and Industries Ltd (MVIL) to increase his shareholding up to 75 percent in the holding company, which will be listed post the demerger of Max India.

The appointed date for the demerger is 1 April 2015, and the demerger is expected to be completed within the next six to nine months.

Max India currently has cash reserves of Rs 605 crore as on 31 December 2014. It is proposed to split the cash reserves as on appointed date of 1 April 2015 between the three listed companies such that Max Financial Services will hold Rs 150 crore, MVIL will hold Rs 10 crore and the balance, likely to be over Rs 400 crore will be held by the newly formed Max India Limited.

Max India shares today ended at Rs 492.75 apiece on the BSE, up 8.40 percent from its previous close.

“The demerger will provide these businesses, which are currently in their growth and development phases, sharpened focus to fulfil their tremendous potential,” Singh said.

“We are perhaps most uniquely placed in the in the life insurance sector where we don’t have any obligation that the Mitsui stake has to claw up to 49 percent so we are totally free…so it all depends on the right time…whether another investor want to come for 23 or 23 FIIs want to come in and take one percent each.

“I don’t think, as far as i know, any of the top 10 insurance companies have this freedom of growing,” he said.

“Max Bupa is a different story, there Bupa has the first right to claw up to 49 per cent and they have exercised that right and they’ll be taking up that additional 23 percent,” he said.

Post-demerger, Max Ventures and Industries Ltd (MVIL) would hold 99 per cent equity in Max Speciality Films Ltd.

“Max Speciality Films has always been an efficiently run entity demonstrating consistent growth and creating shareholder value.
The demerger will bring more focus to this cash-generating business and enablement to develop this business, which has strong potential to grow through capacity augmentation,” Singh said.

Commenting on the divestment in the clinical research business, Singh said the the sector did not pick up as was expected earlier.

“There are regulatory, compliance issues. The industry hasn’t picked up,” he said.

Once the demerger scheme is effective, after due regulatory approvals, Max India’s shareholders will retain one equity share of Rs 2 in Max Financial Services Ltd and will additionally get one equity share of Rs 2 of Max India Ltd for every one equity share of Rs 2 each held in Max Financial Services.

Shareholders will get one equity share of Rs 10 each of Max Ventures and Industries Ltd for every 5 equity shares of Rs 2 each held in Max Financial Services.

Max India currently has cash reserves of Rs 605 crore as on 31 December 2014. It is proposed to split the cash reserves as on appointed date of April 1, 2015 between the three listed companies such that Max Financial Services will hold Rs 150 crore, Max Ventures and Industries Ltd will hold Rs 10 crore and the balance crore will be held by the newly formed Max India Limited.

The top leadership of Max India – Analjit Singh (Chairman), Rahul Khosla (Managing Director) and Mohit Talwar (Deputy Managing Director) – will continue in their roles and upon demerger, will continue to hold appropriate roles in the demerged entities of the Max group.

Further the top leadership of the Max group’s operating companies will continue in their respective roles – Rajesh Sud, MD and CEO of Max Life and Chairman of Max Bupa, Rajit Mehta, DMD of Max Healthcare, Tara Singh Vachani, CEO of Antara, Jaideep Wadhwa, CEO of MSF and Mohini Daljeet Singh, Chief Executive of Max India Foundation.

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