REVAMP Mgmt rejig at LIC’s MF arm

Mumbai: LIC Nomura Mutual Fund is finally set to begin its innings afresh with a new CEO and a new team from its joint venture partner Nomura. The mutual fund has seen its position slip from number seven at the time of the joint venture agreement in 2009 to 20th in terms of assets under management. 

    Nilesh Sathe, executive director in charge of LIC's northern zone, has been appointed CEO of LIC Mutual Fund — a 65-35 joint venture between Life Insurance Corporation of India and Nomura of Japan. Also a team of five senior executives from Nomura recently joined the company. Sathe is an expert in distribution, having built a new channel of chief life insurance agents at LIC by getting senior agents to mentor trainees. Former CEO Mohan Raj will move to head LIC's training centre in Chennai. 

    While LIC is expected to lead the distribution, is joint venture partner Nomura is expected to bring in the expertise in respect of equity fund management. This is an area where LIC has been lagging, partly because it does not pay private sector salaries to attract talent. Nomura has posted its executives on secondment from other offices. The chief operating office of Nomura holding, Yugo Ishida, is a board member. 

    The corporation is keen on improving the profile of LIC Mutual Fund on several fronts. The immediate target is to improve the ranking of fund, which has a corpus of less than Rs 6,000 crore. LIC MFs share of assets under management is less than 1% of the industry. LIC would attempt to leverage its distribution strength and brand. Officials at LIC said that considering that mutual funds such as Reliance MF and Birla SunLife MF have large pools of assets under management without having a bank within the group to distribute its products, the feeling within LIC is that LICMF could have a larger market share since the corporation enjoyed trust of policyholders. 

    In 2009, Nomura asset management company (AMC) had acquired a 35% strategic stake in LIC Mutual Fund for Rs 308 crore.

Mitsui picks up 26% in Max NY Life Stake Buy Valued At 2,731 Crore, New York Life Exits JV With Max India

New Delhi: Mitsui Sumitomo Insurance Company (MSICL) of Japan on Thursday acquired a 26% stake in Max New York Life (MNYL), the country's fourth largest private life insurance company, for Rs 2,731 crore. 

    Under the deal, US partner New York Life (NYL) sold its entire 26% stake in the MNYL. Max India got a net cash flow of Rs 802.2 crore, while its stake remained at 70%. Share prices of Max India rose by around 8.5% to close at Rs 204 on BSE after the deal. 

    In the first phase of the deal, the Indian partner Max India acquired 9.4% equity of MNYL from foreign partner NYL at par value for Rs 182.3 crore. In the second phase, Max India sold 9.4% stake in MNYL to MSICL for Rs 984.5 crore. So, Max India made a pre-tax profit of Rs 802.2 crore. In the third part of the transaction, NYL sold its remaining 16.6% stake in MNYL directly to MSIC for Rs 1,747 crore. 

    The total consideration of Rs 2,731 crore for 26% values MNYL at Rs 10,504 crore, which is 3.3 times of its embedded value. The Rs 802.2 crore that the Max India got in the transaction is for its instrumental role in developing the company as the majority partner since the inception of MNYL, said a joint statement issued by Max India, NYL and MSIC. 

    The amount paid is consistent with recent transactions and all parties are comfortable with the valuation, said Michael Sproule, executive V-P and CFO of NYL. However, it is learnt that NYL agreed to pay the Rs 802.2 crore to Max India to circumvent the first right of refusal that the local partner had in case of NYL wanted to exit the venture. 

    NYL's capital gain was around Rs 1,175 crore on an investment of around Rs 575 crore spread over 11 years. Sproule said the return was satisfactory. He said the buyer has already deducted the capital gains tax at the rate of 21%. A senior lawyer said that NYL has to pay tax on the capital gains on the sale of shares to MSICL. The sale of share to the Max India was done at par and so there is no capital gains earned in that. Sproule said the sale of its entire stake of 26% in the joint venture should not be taken as an indication that India is no more an attractive destination. "India remains a vibrant and attractive market for life insurance.'' 

    After the deal, MNYL will be renamed as Max India Insurance Company. However, MSICL will have two representatives on the board of the new joint venture company. Founder chairman Analjit Singh said for the next stage of MNYL's growth, Mitsui Sumitomo will be an ideal partner. 

STRATEGIC PLAY 

In the first part of the deal, the Indian partner Max India acquired 9.4% share capital of MNYL from foreign partner New York Life at par value for Rs 182.3 crore 

In the second part, Max India sold 9.37% stake in MNYL to Mitsui Sumitomo Insurance Company (MSIC) for Rs 984.5 crore. So, Max India made a pre-tax profit of Rs 802.2 crore In the third part of the transaction, New York life sold its remaining 16.6% stake in MNYL directly to MSIC for Rs 1,747 crore

Analjit Singh