WestBridge & Prudential vie with ICICI Lombard for Star Health
ICICI Lombard’s cash-cum-stock is said to be the highest, but the WestBridge consortium, and the Prudential and Premji combine, have made compelling all-cash offers, people directly aware of the matter said. The investors of the Chennai-headquartered Star Health had mandated Kotak Mahindra Bank last year to advise on a sale process, which has entered the final round.
WestBridge has roped in Kedaara Capital and Madison India Capital to form a consortium, pegging the valuation of Star Health at around Rs 6,000 crore, or $920 million, sources said. Prudential’s bid is through the Hong Kong entity and was seen competitive to that of the WestBridge and Kedaara consortium, they added.
Prudential is pursuing the acquisition as part of an attempted foray into India’s rapidly expanding health insurance market and has decided to join forces with Azim Premji’s investment arm, which will be the local partner in a sector where FDI is capped at 49%. Prudential of UK has a life insurance joint venture with ICICI Bank, listed on local bourses with a market capitalisation of more than Rs 57,000 crore, or about $9 billion.
General insurer ICICI Lombard was making a strong push for the acquisition, also buoyed by the fact that Star Health counts ICICI Venture among its existing set of shareholders seeking an exit. The decade-old health insurance company’s other investors are Sequoia Capital, Tata Capital, Oman Insurance Company, ETA of Dubai and Apis Partners.
When contacted, Star Health declined to comment. ICICI Lombard did not respond to queries, while WestBridge offered no comments. Emailed queries to Prudential remained unanswered. HDFC Ergo had also made an offer but at a significantly lower valuation, sources said.
The country’s first standalone health insurance company is the brainchild of V Jagannathan, who formerly headed public sector insurer United India Insurance. The management, led by Jagannathan, has a stake and would have a say in deciding on the sale of the company, which also deals in personal accident and travel insurance covers.
The deal-making activity in financial services, and insurance in particular, has revved up with established players getting into the merger and acquisition (M&A) mode. Smaller insurers have been struggling to meet solvency requirement in a high-growth and hyper-competitive industry poised for consolidation. Existing investors find the timing ripe to cash out as valuation benchmarks in the insurance sector were being established through a slew of initial public offers (IPOs) and M&A activity. ICICI Lombard was the first non-life insurer to go public and has a current market valuation of Rs 36,000 crore.
Star Health’s promoter group holds close to around 44%, of which 37.5% is with domestic and 6.16% is with foreign investors. Total foreign investment in the company stood at 36.5% as against the maximum permissible 49%. The company’s paid up capital stood at Rs 456 crore. The company had reported a net profit of Rs 118 crore from a total premium of Rs 2,960 crore in FY17. The company had an incurred claims ratio of 60%. The total health insurance market in India stood at Rs 34,527 crore last fiscal, up 26% from Rs 27,457 crore in the previous year.