SBI Life holds beauty parade for IPO

The joint venture between State Bank of India and BNP Paribas Cardif meets investment bankers for what is set to be the second listing of a private sector insurer.

Senior management of India’s SBI Life Insurance is meeting investment banks this week to select joint bookrunning lead managers for a proposed flotation in the second half of this year, according to sources familiar with the situation. 

The beauty parade is taking place two weeks after the life insurer sent out request for proposals to potential deal managers, according to the sources.

At the same time, the insurer is seeking approvals from both the Insurance Regulatory and Development Authority (IRDA) and the Securities and Exchange Board of India.

SBI Life Insurance was founded in 2001 under a bancassurance partnership between State Bank of India and BNP Paribas Cardif, the insurance business of the French bank. SBI owns 70.1% of the life insurer and BNP holds 26%, while the remaining 3.9% stake is held by a group of strategic investors that include Singaporean state-owned fund Temasek Holdings and private equity firm KKR.

The IPO, which is slated for the second half of the year, will see SBI divesting a 10% stake through the offer-for-sale route. SBI Life was valued at about $7.1 billion when its 3.9% stake was sold last year for Rp18 billion ($264 million).

Based on that valuation, the IPO could raise about $710 million. However, the IPO proceeds will go entirely to SBI while SBI Life itself will not raise any capital, implying that the IPO is unlikely to materially impact its business.

That certainly does not mean SBI Life’s IPO will not be significant to India’s stock market. It will be just the second insurance company to list after the IRDA asked local insurance companies to go public as a means to liberalise the highly-regulated insurance market and to improve transparency and accountability.

IRDA’s push for more publicly-listed insurers came last year as the regulator eased restrictions on foreign investment into the insurance sector, allowing foreign firms to invest up to 49% in local insurance companies.

Sources familiar with the situation said public investors have high hopes for the upcoming SBI Life IPO following the highly successful listing of ICICI Prudential Life Insurance, the insurance JV of ICICI Bank and Prudential Corporation which went public through a $912 million IPO last September.

At the time of the listing, ICICI Pru secured a valuation of $4.85 billion, which was nearly 50% higher than its implied valuation in the private market a year earlier. The IPO was priced at top of the guidance and was over 10 times oversubscribed by institutional investors.

Following in ICICI Pru’s footsteps, SBI Life will hope to enjoy first-mover advantage against a slew of insurance companies that are slated to go public in the next two years.

As part of India’s budget for the 2017/18 financial year, finance minister Arun Jaitley proposed the country’s biggest divestment plan in history. It includes selling down a 25% stake in each of the five government-owned insurance companies through public listings.

Investment bankers are expecting New India Assurance and General Insurance Corporation to list in the near future, followed by National Insurance, Oriental Insurance and United India Insurance. Analysts have estimated that these divestments could raise some $2.3 billion for the government, creating a larger pool of insurance stocks in the process.

SBI Life hopes its rarity value as well as its leading position in the world’s biggest life insurance market will prove a smooth listing process. 

India tops the world with 360 million life insurance policies, according to the Ministry of Commerce and Industry. The figure is expected to grow at a compound annual growth rate of 12% to 15% through 2020.

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