Kotak Mahindra to buy out Old Mutual's stake in insurance JV

Kotak Mahindra Bank Ltd has agreed to acquire British partner Old Mutual plc's 26 per cent stake in their life insurance joint venture for $201 million (Rs1,292.7 crore) in cash.

The deal will give Kotak Mahindra Bank 100 per cent ownership of Kotak Mahindra Old Mutual Life Insurance Ltd.

The transaction is subject to regulatory approvals and is likely to complete in the second half of 2017, the private-sector bank said in a stock-exchange filing today.

Old Mutual said in a separate statement that the net consideration after tax will be about Rs1,170 crore. The company will use the proceeds for general corporate purposes.

Rothschild is acting as financial adviser to Old Mutual in the transaction.

Kotak Mahindra, India's fourth-largest private-sector lender, had established the insurance joint venture with London- and Johannesburg-listed Old Mutual in 2001.

India's crowded life insurance industry has 24 companies and is dominated by state-run Life Insurance Corp. SBI Life Insurance Co, a joint venture of State Bank of India and BNP Paribas, ICICI Prudential Life Insurance Co Ltd, and HDFC Life Insurance are the top private-sector life insurers by premium income.

India's insurance sector has seen deal-making rise after Parliament passed the Insurance Laws (Amendment) Bill in 2015 to lift the foreign investment cap in private-sector insurers to 49 per cent from 26 per cent.

Since the rule change many foreign investors have increased their stake in Indian joint ventures. These include Japan's Dai-ichi Life Insurance Company Ltd and Nippon Life, Canada's Sun Life Financial Inc, British insurers Bupa Plc and Aviva Plc and French firm AXA. However, there have been a few cases of local companies buying out their overseas partners, with the Kotak deal being the latest.

Kotak Mahindra Group is a diversified financial services conglomerate with businesses such as asset management, insurance, investment banking, private equity and stockbroking. Its decision to buy Old Mutual's stake follows a board decision last month to raise as much as $825 million by selling shares.

The fundraising is aimed at reducing founder Uday Kotak's stake in the bank and augmenting the lender's capital base to pursue mergers and acquisitions, acquire stressed banking assets, grow subsidiaries, and expand its digital banking and international lending operations, it said at the time.

Kotak Mahindra Bank had, in November 2014, acquired bigger peer ING Vysya Bank in an all-stock deal worth $2.4 billion.