Indian companies with insurance ventures, including Max India Ltd. and Reliance Capital Ltd., are poised to benefit from higher foreign-shareholding limits that may draw more than $3 billion from overseas investors.
The passage of a bill raising the amount foreign companies can own in Indian insurers to 49 percent from 26 percent allows Bupa Finance Plc to boost its holding in its venture with Max India, which the U.K. company had applied for in January. Shares of Reliance Capital, which has a venture with Nippon Life Insurance Co., rose to a three-month high.
Parliament voted Thursday to increase the foreign investment limit in the first major legislative victory for Prime Minister Narendra Modi as he seeks to overhaul Asia’s third-biggest economy. The bill, which requires presidential assent to become law, could lure about 200 billion rupees ($3.2 billion) of investment, State Bank of India Chairman Arundhati Bhattacharya said in an e-mailed statement.
“We believe this will infuse the sector with both technical know-how of the joint-venture partners and bring in the much awaited capital,” Edelweiss Securities Ltd. analysts including Nilesh Parikh said in a note Thursday. “This could pave the way for the listing of insurance players and foreign partners increasing their stakes.”
The insurance bill, which had been stuck in parliament since 2008, shows that Modi can get legislative changes passed through the opposition-controlled upper house, which had blocked the measure since he took power last May. Now he must work to pass proposals to ease land clearances and implement a nationwide sales tax, measures that will do more to attract investors.
The new investment limits for insurance companies compare with the 74 percent overseas investors are permitted to hold in the country’s private sector banks, according to central bank regulations.
While the bill requires majority ownership and control to remain with resident Indians, it allows foreign companies to expand in the world’s second-most populous country, where insurance penetration is less than the global average.
American International Group Inc. and Standard Life Plc own stakes in local insurers. Japan’s Tokio Marine Holdings Inc. has a venture with Edelweiss Financial Services Ltd., while AXA SA operates one with Bharti Enterprises Ltd.
India’s insurance penetration, or premiums underwritten as a proportion of a country’s total economic output, was 3.9 percent in 2013, less than the world average of 6.3 percent, according to Minister of State for Finance Jayant Sinha. Higher insurance penetration can help Modi as he looks to raise funds to upgrade the nation’s roads, ports and other infrastructure.
Max India shares rose 1 percent as of 10:27 a.m. in Mumbai on Friday, extending the previous day’s advance of 5.4 percent. Exide Industries Ltd., a battery maker which owns a life-insurance business, jumped as much as 3.9 percent.
“Max India is in a sweet spot,” Managing Director Rahul Khosla said in an e-mailed statement. Its insurance venture Max Life has “no pre-committed contractual obligations to dilute our stake. We therefore have the flexibility to make the right choices at the right time and at the right valuation.”
Reliance Capital climbed 1 percent after earlier rising 5.2 percent to the highest intraday level since Dec. 16. It surged 11 percent on Thursday. Its venture partner Nippon Life said the bill presented “an important business opportunity.”
The “possibility of additional investment in Reliance Life needs to be discussed thoroughly with our important partner, Reliance Group, in the future,” Shinichiro Kon, a Tokyo-based spokesman for Nippon Life, said by phone Friday.
The new bill may accelerate some companies’ plans to sell equity in their insurance businesses. Housing Development Finance Corp. Chief Executive Officer Keki Mistry said Jan. 29 the company was waiting for lawmakers to approve the insurance bill before deciding on an insurance IPO.
State Bank, India’s largest lender, plans to sell stakes in its life and general insurance ventures, Bhattacharya said Feb. 13. ICICI Bank Ltd. is in talks to divest part of its stake in an insurance unit to Temasek Holdings Pte and Carmignac Gestion for about $300 million, people familiar with the matter said earlier this week.
“Although we don’t see players being in dire need of capital, this will go a long way in boosting sentiments and help in value discovery,” Edelweiss’s analysts wrote. IPOs are “next in line.