Kotak Mahindra Bank buys out Old Mutual from insurance arm for Rs 1,292 crore

Mumbai: A month after announcing a Rs 5,000-crore capital raising plan to drive inorganic growth, Kotak Mahindra Bank (KMB) on Friday announced a Rs 1,292-crore buyout of the British partner Old Mutual's 26 percent stake in its life insurance arm.

The fourth largest private sector lender will become the 100 percent owner of the 16-year-old Kotak Mahindra Old Mutual Life Insurance post acquisition, which bucks the trend of foreign partners increasing their stakes after foreign holding norms were hiked to 49 percent in December 2015.

As part of the deal, expected to be closed over the next quarter or so, Kotak Bank will be paying Old Mutual Rs 1,292.7 crore for its 26 percent stake in the joint venture.

Old Mutual, undergoing an organisational revamp, approached the bank asking if it was interested in buying back the stake, Kotak group's president for asset management, insurance and international business Gaurang Shah told PTI.

"From our perspective, we have been saying for sometime that we are actively pursuing opportunities to deepen our franchise all over the country. It is more of matching of strategic interest of both the partners," he added.

He hinted that the payout will happen once the bank raises money through the qualified institutional placement.

However, shareholders weren't enthused with the deal announced around 6 AM and the scrip shed 1.47 percent to close at Rs 901.10 on the BSE, as against 0.37 percent correction in the benchmark. And this battering came a day after they lapped up the stock after a 40 percent rise in net.

But Shah claimed the transaction is "value accretive" and will give it a lot of room to grow in future.

He said it is a profitable business which reported a Rs 300 crore bottomline last year and has seen a growth of 20 percent every year in profits over the last four years.

The overall networth of the business stood at Rs 1,825 crore as of March 2017. It has 15 million consumers and the annual premia grew 28 percent, he said.

"India is in an exciting phase of its economic journey and the financial services sector, especially the insurance sector, is poised for significant growth. Kotak Life will continue to leverage this opportunity," Shah said.

The deal comes a month after the bank board gave the go-ahead to raise over Rs 5,000 crore from a share sale.

The board move came amid reports of the bank looking at inorganic growth options within the banking space, which have been repeatedly confirmed by the bank management as well.

The bank is also looking at the distressed assets space to invest the money. Its promoters are also required to get down their holding to 30 percent by June from the present level of over 32 percent, which will come down by a percentage point after the share sale.

Executive vice chairman Uday Kotak had yesterday said the shareholders would meet on May 9 to consider the share sale proposal and the it is working on multiple options of reducing promoter holding.

Shah today hinted that the Old Mutual payout may happen after qualified institutional placement issue, saying it will take up to four months for the payment to be made after receiving necessary approvals from RBI, Irdai and the fair trade watchdog CCI.

When asked about future plans for the business and if a listing is on the cards, Shah replied in the negative saying the company is well capitalised with a buffer level of 3 as against the regulatory requirement of 1.5.

"I think we don't need to raise any capital for the life insurer. We will continue with 100 percent ownership for some time to come," he said, stressing that this is the only private sector company among top-5 private sector insurers owned fully by an domestic company.