India's Reliance Life Aims for Capital Through IPO or Strategic Investors by 2010

India-based private financial services company Reliance Capital Ltd., part of conglomerate Anil Dhirubhai Ambani Group, is planning to raise funds in its life insurance unit, Reliance Life Insurance [90255], either through an initial public offering or with strategic investors by the first half of 2010.

Sam Ghosh, chief executive of Reliance Capital, confirmed the listing plan of Reliance Life with BestWeek Asia/Pacific, claiming that the main purpose of the proposed IPO is to "unlock value for its parent Reliance Capital."

"If we get an IPO approval from the government, we would like to divest up to 20% of Reliance Life. Of this, 10% will be through pre-IPO placement plus few strategic investors and the rest 10% through the public," claimed Ghosh.

Fund-raising Strategies

According to the CEO, the company has yet to start negotiations with any party for the pre-IPO placement at present. He emphasized that if Reliance Life does not get a waiver for the listing, management will focus on the strategy of finding strategic investors.

"If we go for strategic financial investors, we may divest up to 26%. However, at this point, we have left it at 20%," said Ghosh.

When asked if Reliance Life has set any specific criteria for selecting strategic investors, Ghosh said the company would not only consider domestic companies, but is also "open to seek foreign investors."

He also said the company is "in talks" with several target partners, including a foreign life insurance company and some private equity financial companies.

"We would like to look at completion of the divestment, whether through an IPO or to strategic financial investors, by latest second quarter next year," said Ghosh.

He noted that the final decision of the company's fund-raising strategy is still subject to the Indian central government's approval, while the total fund-raising size depends on the market environment.

Earlier in September, the Life Insurance Council of India cited domestic reports saying that the Indian government is likely to allow insurance companies to list after five years of operations against the 10 years prescribed at present.

Reliance Life, which is about to complete four years of operation, was originally planning a listing by March this year, but the proposal was then turned down by the Insurance Regulatory and Development Authority. The regulator also referred the case to the Finance Ministry of India for further studies.

J. Hari Naravan, chairman of the IRDA, earlier said in an interview that there is an insurer in discussion with the IRDA on whether the regulator will permit the company to execute a disinvestment now, but the regulator said "it is only the government that can reduce the tenure."

The insurer then approached the government, which is now thinking of reducing the restriction to five years, added Naravan.

According to the Life Insurance Council, none of the 22 private insurers in India have completed 10 years of operation. The first license was issued to HDFC Standard Life [77629] in October 2000.

If the rules are amended, the council believes at least 10 out of these 22 insurers can raise funds through the public market, and Reliance Life will probably be the first beneficiary.

The insurance council said that apart from Reliance Life and HDFC Standard Life, the list of the potential listing insurers includes ICICI Prudential Life Insurance [89580], SBI Life [90253], Max New York Life [78465], Kotak Mahindra Old Mutual Life [90261], Birla Sun Life [90264], Bajaj Allianz Life Insurance [90263], Metlife India [90520], ING Vysya Life Insurance Co. [90256] and Tata AIG Life Insurance[90169].

Although floating on the stock market or seeking strategic investors is Reliance Life's ultimate goal to enlarge funding for its market expansion, the life insurer also aims at strengthening its business coverage by entering the rural market in the country.

Microinsurance Opening

Mumbai-based Reliance Life has recently introduced microinsurance products across 10 states in India and expects to generate total premiums of US$20 million from this sector by next year, said Ghosh.

The insurer also said it is looking to gain premiums of around 10 billion rupees in the next five years from rural areas by tapping this sector with the company's group savings insurance policies and group term life policies.

Ghosh said the microinsurance segment has "unique" servicing requirements, and the insurer plans to leverage technology to drive down transaction costs.

"We are in the process of setting up partnerships with organizations like Micro Finance Institutions, self-help groups, nongovernmental organizations, banks and other financial groups to access these segments, which have huge market potentials supporting by a large population in the rural areas," said Ghosh.

According to the United Nations Development Program, microinsurance, which refers to the provision of financial services to low-income groups, is a US$2 billion opportunity in India. The current reach of microinsurance in India is 5 million people, or only 2% of the poor.

Reliance Life an associate company of Reliance Capital Ltd., which has interests in asset management and mutual funds, stock brokering, life and general insurance, proprietary investments, private equity and other activities in financial services in India. Reliance Life ranks the fourth among India's private life insurers.

Reliance Capital is part of Reliance-Anil Dhirubhai Ambani Group, which has a presence in communications, energy, natural resources, media, entertainment, health care and infrastructure.