Merger proposal between HDFC Life & Max Life hits IRDAI hurdle

The ongoing exercise for the proposed merger of Max Life Insurance Company with HDFC Life has hit the regulatory hurdle as the Insurance Regulatory and Development Authority of India (Irdai) has expressed reservations about the deal structure.

In a notification to the stock exchanges, Max India on Saturday said that Irdai has expressed reservations in accepting the scheme of amalgamation in its current form.

“An application was filed by MLIC and HDFC Life seeking the in-principle approval of IRDAI for the above-mentioned scheme on 21 September 2016. IRDAI has expressed reservations to accept the scheme of amalgamation in its current form,” said Max on BSE.

“Max Life and HDFC Life believe that the scheme of arrangement as submitted to the Irdai is in compliance with all applicable laws and propose to represent and clarify the matter to Irdai,” it said.

According to Section 35 of the Insurance Act 1938, no life insurance business of an insurer can be transferred to any person, or transferred to or amalgamated with the life insurance business of any other insurer, except in accordance with a scheme prepared under this Section and approved by the Authority.

“Since Section 35 talks about merger of one life insurance company with another life insurance company, Irdai officials are interpreting it as a merger between one insurance business and another (non-insurance) business,” said an official involved in the merger deal.

“ The issue raised by Irda is just a basic technical disclosure requirement for more clarity on the deal to the regulator’s and the public. Irda has asked for clarification with regards to compliance with section 35 of the insurance act, which deals with amalgamation and transfer of life insurance business to any other company and the pertinent disclosures. Basically, Irdai wants to ensure that the merger is happening between two life insurance companies only , I.e HDFC Life and MAX Life. Since it is a three step merger process and Max Financial Services, which is an NBFC, is also involved in the scheme, Irda wants to ensure that at no stage any amalgamation is happening between Max Financial and any insurance company. So we have to clarify and disclose to Irdai that the non-insurance businesses , such as the telecom business, of MAX Financial Services will be first demerged into Max India and then only the life insurance business of Max Life will be effectively transferred completely to Max Financial Services and subsequently it will be merged with HDFC Life which will result in the automatic listing of the merged entity” a person involved in the merger process has been quoted on condition of anonymity by a section of  media.

This will not come in the way of the merger. The deal will go for a high court approval in the second week of December and the entire process is likely to be completed by March 2017,” he added.

The boards of HDFC Life and Max in August had signed a three way merger, which would create India’s largest private-sector insurer with total assets more than Rs1.1 trillion and lead to the eventual listing of HDFC Life on stock exchanges.

So far the companies have been able to secure the nod of minority shareholders on the proposal to pay a Rs 850 crore non-compete fee to Analjit Singh and other promoters of the Max group.

Source:- AIP News Bureau

Date:-12th November,2016

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