‘3-yr profit track record must for insurers’ IPO’

Mumbai: The Securities and Exchanges Board of India (Sebi) has turned down an IRDA proposal seeking relaxation of the profitability criterion forinsurance companies planning an initial public offering. 

    This means that insurers seeking to launch a fixed price initial public offering will need to have a three-year profit track record. 
    The Sebi Committee on Disclosures and Accounting Standards (SCODA) had constituted a sub-committee comprising regulators and merchant bankers to suggest disclosure requirements for insurance companies seeking to go public. 
    The report, which was made public by Sebi on Wednesday, states that there is no need to provide specific relaxation from the eligibility criteria toinsurance companies because those which do not comply with the profitability criteria can still raise capital through the book-building process. 
    The norm requires insurance companies to make a slew of disclosures in their offer document which are not mandatory for other firms. Besides risk factors that are specific to the industry, general insurance companies are required to provide full details of their reinsurance contracts. The Sebi report also defines promoters as all those holding shares in the insurance company at the time of IPO, but excludes employees with stock options. 
    Given that there is no listed insurance company in India, many feel that price discovery for an insurance business could be a major challenge. For instance, Mitsui Sumitomo has acquired a 26% stake in Max Life Insurance in a deal that valued the company at over Rs 10,000 crore. However, the m-cap of Max India, which holds 76% stake in Max Life, is only Rs 4,734 crore. 
    Sebi's observations will not have an immediate impact on theinsurance industry since no company has made plans for an initial public offering. 
    Although HDFC Life had announced that it would go public, the promoters have indicated that they are awaiting relaxation of foreign direct investment norms which will allow FII participation in the issue. "Without participation of FIIs it would be very difficult to sell an issue through the book-building route," said the CEO of a life company. At present, no company can offer shares to FIIs because nearly all companies have a foreign promoter holding of 26% stake—which is the highest foreign shareholding permissible under current guidelines.

SEBI DENIES RELIEF