Axis Bank to now buy 17% stake in Max Life instead of 29%

Axis Bank, the country’s third-largest private sector lender, on Monday announced that it would acquire 17% stake in Max Life, instead of 29%, which the bank had decided in April. The Insurance Regulatory and Development Authority of India (Irdai) had then raised questions on the deal structure.

Axis Bank, in a regulatory filing, stated that it proposed to acquire 17.002% of the equity share capital of Max Life, resulting in total ownership of 18% after the transaction. “The parties have executed the definitive agreements. Axis Bank and Max Life will shortly approach the respective regulatory authorities, with revised applications for their consideration and approval. The transaction is subject to regulatory approvals,” said Axis Bank.

In April, Axis Bank and Max Financial Services (MFS) had announced the signing of definitive agreements to become joint venture partners in Max Life Insurance. The deal was valued at around Rs 1,600 crore. Max Financial Services presently holds a 72.5% stake in Max Life while Mitsui Sumitomo Insurance (MSI) and Axis Bank hold 25.48% and 1.99% stakes, respectively.

Earlier the deal was structured in a way that MSI would hold 21.87% stake of MFS stake in exchange of 20.57% of Max Life through a share swap transaction. In the second step, MFS and MFI were to acquire 1% stake in Max Life from Axis. Later MFS would sell 29% stake in Max Life and finally MFS would acquire balance 5.17% stake from MSI.

However, on July 23, Axis Bank, in the regulatory filing, said the bank and the MFS had agreed to certain value creation options and related rights. “Based on correspondence from Irdai received by the company, Axis Bank and the MFS have agreed to make some changes to the value creation options and factor in some alternate mechanisms subject to regulatory approvals and as maybe permitted under applicable law,” stated Axis Bank.

According to sources, the insurance regulator had raised queries on the value creation option. If the value creation options were not consummated within 63 months from the closing, the transactions provided for a put option for Axis Bank on the company to sell all shares held by the bank in Max Life at a price of Rs 294 per share (subject to adjustments mutually agreed between parties) within nine months of exercise of such put option. Axis Bank was to acquire 29% stake in Max Life from MFS at over Rs 28.62.

Irdai data showed that first year premiums for Max Life Insurance for the period between April and July was Rs 1,369.15 crore, compared to Rs 1,354.15 crore in previous year — growth of 1.11%. The market share of Max Life Insurance was at 1.89% as in July in the life insurance industry. The stock price of Axis Bank on Monday ended the day at Rs 445.70 — up by 1.20% or Rs 5.30 on the BSE. While stock of Max Financial Services closed at Rs 549.70 — down by 1.38% on the BSE.