Japan’s Nippon Life Insurance has expressed concerns over the sale of equity in Reliance Nippon Life Insurance under the insolvency proceedings of Reliance Capital, as per sources with knowledge of the matter.

Following reports of Aditya Birla Capital submitting its bid for the insurance arm of RCap, Nippon Life Insurance has approached the administrator of Reliance Capital, stating that they would not prefer to merge the JV with another company and are instead looking to rope in a strategic partner to buy Reliance Capital’s stake.

“We want to bring in a strategic partner with whom we can do business for the long term,” Nippon Life Insurance said in a letter to the administrator, adding that it has no intention of merging with another life insurance company or selling its stake, as per sources.

Reliance Nippon Life Insurance is a 51:49 joint venture between Reliance Capital and Nippon Life Insurance. The company was the only group entity to not receive any individual bids during the submission of initial or non-bidding bids, which ended on August 29.

However, earlier this week, Aditya Birla Capital approached the CoC (committee of creditors) of Reliance Capital to bid for Reliance Nippon Life Insurance, a request which has reportedly been approved by the lenders.

Possible merger?

Aditya Birla Capital is the promoter of two insurance companies—Aditya Birla Health Insurance and Aditya Birla Sun Life Insurance, which is also a 51:49 joint venture between the Aditya Birla Group and Canada’s Sun Life Financial Inc.

IRDAI guidelines do not allow an entity to hold over a 10 per cent stake in two insurance companies. This means that if Aditya Birla Capital’s bid for Reliance Nippon Life Insurance is approved, the latter would likely be merged with Aditya Birla Sun Life Insurance—something that Nippon Life Insurance is not in favour of.

In case the merger goes through, Nippon Life Insurance’s stake will get diluted due to the presence of the third partner, Sun Life Financial, and because Aditya Birla Sun Life Insurance is valued higher than Reliance Nippon Life Insurance.

Nippon Life Insurance’s stake could fall to as low as 15 per cent in the merged entity, sources said.

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