Max Life’s deal with Mitsui Sumitomo opens door to Axis Bank

March 6 2020 by Nick Ferguson

Mitsui Sumitomo’s agreement to sell its stake in India’s Max Life after months of negotiation has paved the way for bancassurance partner Axis Bank to step in.

The Japanese insurer originally announced a deal to swap its shares in Max Life for a stake in group parent company Max Financial Services last August, before calling off the deal in November last year after the two sides failed to come to terms. However, discussions continued and an agreement was announced this week.

According to public statements by Max, the deal will make it easier to bring in new investors.

“This transaction makes the holding structure simpler and helps consolidate our shareholding in Max Life, which is expected to benefit all our shareholders by attracting more investor interest,” said Mohit Talwar, vice-chairman of Max Group.

Indeed, the news of Mitsui’s share swap came just a couple of days after unnamed sources told local media in India that Axis Bank intended to buy a 17.9% stake in Max Life, taking its total ownership to 19.9%, plus an option to increase its stake to 30%.

“This transaction makes the holding structure simpler and helps consolidate our shareholding in Max Life, which is expected to benefit all our shareholders by attracting more investor interest.” Mohit Talwar, Max Group

For Mitsui, swapping its ownership into the parent’s listed shares should make it much easier for it to exit if it chooses, although it now appears that a sale to Axis might have been an even simpler option.

Bancassurance
A deal between Max and Axis has long been rumoured given their mature bancassurance partnership, and the fact that Max is the biggest private life insurer without a bank owner.

This is not the first time Max has sought a bank tie-up, having agreed a deal with HDFC Life in 2016 only to see it collapse after regulators rejected the deal’s complex structure, which would have involved the sale of Max Life back to parent Max Financial Services, in an apparent breach of insurance regulations.

The investment by Axis may also draw scrutiny from regulators after the central bank said in December that banks should limit their ownership of insurers to 30%. Further clarification is still needed and, with that in mind, Axis will reportedly buy an option to increase its stake to 30% depending on how the banking regulator views the deal.

“The Max Life-Axis Bank partnership is a natural.” Analjit Singh, Max Group

While such details are not yet public, Max and Axis have admitted that they are exploring a deal.

“The Max Life-Axis Bank partnership is a natural,” said Analjit Singh, founder and chairman of Max Group, in a statement about the talks in late February. “The strategic interest of Axis Bank in Max Life will lead to the much-awaited permanence and allow both companies to work towards an enduring future for policyholders and other stakeholders. We also believe that the potential transaction will provide a fillip to the life insurance sector overall.”

Valuation
Based on Max Life’s embedded value of roughly Rs100 billion (US$1.35 billion), Axis will pay at least Rs17.9 billion for its initial stake.

The deal will help to secure the 10-year-old bancassurance relationship between the two, which was due to expire in September 2021. To date, the partnership has brought in more than Rs100 billion of new sales, with growth of 18% a year.

It remains to be seen if Mitsui will stick around.

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