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Tokyo-based MS&AD Insurance Group Holdings is buying 26 per cent in Max New York Life (MNYL).
This is a clear pointer to Japan's growing interest in the Indian life insurance space. The stake buy is being done through Mitsui Sumitomo Insurance, which is a subsidiary of MS&AD Group Holdings.
In an all-cash transaction, MS&AD will pay Rs 2,731 crore ($535 million) for the 26 per cent stake, making it the second largest foreign investment in the Indian life insurance sector. This transaction values MNYL at Rs 10,504 crore ($ 2.1 billion). It will also mark the entry of MS&AD, which already has presence in Indian general insurance, into the life insurance sector here.
MS&AD is acquiring the 26 per cent stake in MNYL from New York Life International Holdings (16.63 per cent), a Mauritius entity, and Max India (9.37 per cent).
For this purpose, Max India will buy 9.37 per cent stake of MNYL from New York Life International and sell it to Mitsui Sumitomo Insurance, which is part of MS&AD group. Max India will make a tidy surplus of Rs 802 crore from the proposed independent buy and sell transaction.
However, Max India's stake in MNYL post this transaction will remain unchanged at 70 per cent, Mr Analjit Singh, Chairman, Max India, said at a press conference to announce the contours of the deal.
Once the regulatory approvals are obtained, Max New York Life Insurance will be renamed as Max Life Insurance Company Ltd.
Mr Singh said that the entire transaction should be seen as New York Life, a Fortune 500 company, leaving the joint venture Max New York Life, which started its journey in 2001.
This falls in line with the decision New York Life had taken of rewinding from international footprint. Mr Michael Sproule, Executive Vice-President and Chief Financial Officer of New York Life, said the company was not leaving India, but only exiting Max New York Life as part of its strategic re-positioning. Mr Singh said that Max India will use the net cash flow of Rs 802 crore to enable its future growth in both life insurance and other businesses. Mr Singh clarified that Max India was not looking at entry into non-life for now, but it is possible in future.
Responding to a query, Mr Sproule said the buyer was withholding tax on the transaction. In order to be conservative and avoid the risk of penalties, there will be full withholding of taxes, he said.
This will be the case although New York Life believes there will be no tax payable in India as New York Life would claim treaty benefits under the India-Mauritius double tax avoidance agreement.
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