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Friday, Dec 20, 2002

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GIC move to transfer stake hits snag

C. Shivkumar


THE move to transfer the equity stake in the four public sector companies by the General Insurance Corporation Ltd (GIC) has hit a roadblock over valuation issues.

GIC is the holding company for the four general insurance companies, Oriental Insurance Company Ltd, United India Insurance Company Ltd, New India Assurance Company Ltd and National Insurance Company Ltd. The combined capital base of all the four PSU insurers is currently about Rs 10,500 crore, including reserves.

Mr P.C. Ghosh, Chairman of GIC, confirmed the delays in the transfer of the equity stakes. Speaking to Business Line he said: "We are awaiting the Government's advice." However, under current regulations of the Insurance Regulatory and Development Authority (IRDA), reinsurer is not expected to be a stakeholder in the primary general insurance companies. GIC is the designated national reinsurer and, therefore, would have to divest/transfer its stakes in the four companies.

Sources said here that one of the main hitches in the equity transfer was valuation of the stakes. The Government was interested in picking up the stakes at par, as in the case of public sector banks. If the equity transfer were done at par, the realisation to GIC would be just Rs 400 crore.

GIC, however, was reluctant to part with its stake at par, the sources said. This was because unlike the public sector banks, the public sector insurance companies have received little government support since nationalisation. Instead, the support has been in the reverse, where PSU insurers are among the largest holders of government securities and have consistently paid high dividends and taxes, the sources said. The assets of these four companies, especially government securities have considerably appreciated during the last one-year, even after netting for liabilities, in the form of unsettled claims, the sources said.

Consequently, the sources said GIC was interested in transferring its stake only much higher value. "If necessary we are prepared to appoint a valuer for our stakes in these companies," Mr Ghosh said. The book value of the equities in the four public sector companies is currently close to Rs 300 per share.

GIC, the sources said, would like to have a higher realisation in view of the large capital requirements since its emergence as a national reinsurer. Besides, GIC also entertains aspirations of becoming a major global player. It has already participated through co-reinsurance for general insurers in Israel, Turkey and Israel. Besides, it plans to expand its operations both in Europe and the Middle East.

Consequently GIC, the sources said, was not averse to the idea of transferring the stake in favour of some of the public sector banks. In fact some of large public sector banks have already indicated their desire to pick up GIC's stake in public sector insurance companies. This move would allow the PSU banks to diversify their activities to general insurance and offer all the financial/risk products under on roof consonant with international practises. A classic example being Allianz, which owns the Dresdner Bank

So far the domestic public banks have tied up or provided equity support only to life insurance companies. These include LIC, which is the largest stakeholder in the Corporation Bank and the State Bank of India, which is the promoter of SBI Life. LIC itself had a general division, before the nationalisation of the four companies, but no long performs general insurance functions. Only ICICI currently is a fully integrated financial powerhouse, which along with conventional banking functions also offer both life insurance and general insurance companies in its fold.

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