Govt approves 26% stake sale of Reliance life insurance to Nippon

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Govt approves 26% stake sale of Reliance life insurance to Nippon
Posted on : Aug 17, 2011, 05.18am IST

NEW DELHI| HYDERABAD: The government has allowed Anil Dhirubhai Ambani Group firm Reliance Life Insurance to sell 26% stake to Japan's largest life insurer Nippon Life Insurance. But it has asked the insurance regulator to frame a common policy before approving the deal, a source familiar with the development told ET. The deal, announced in March, is worth $680 million.

This means Nippon Life valued Reliance Life Insurance at $2.6 billion. The Insurance Regulatory Development Authority (IRDA ) had sought government approval for the Reliance-Nippon deal as it did not satisfy conditions prescribed under Section 6AA of the Insurance Act of 1938. This section says that any Indian promoter holding more than 26% stake in an insurance firm can divest his stake only after 10-years of operations . Reliance Life will complete 10 years of operation in January next year. Sister firm, Reliance Capital, holds 100% stake in Reliance Life. IRDA, however, said the companies did not need to seek permission from the Centre and the regulator itself has the power to clear the deal. "We don't see any major hurdle and have almost cleared the deal for Nippon to buy 26% of Reliance Life Insurance," said IRDA chairman J Hari Narayan . "I cannot affix a definitive timeline for the deal to be cleared as it is contingent on the time taken by Japanese insurance regulator to certify Nippon's credentials and other procedural issues," he added. Reliance Life refused to comment on the story.

In a circular issued last week, IRDA had said that any company can transfer its shares or issue capital, which would result in a change in shareholding pattern under Section 6A of the Insurance Act with prior approval of the regulator. Section 6A did not cover issue of new capital. Sources in the company and the insurance regulator told ET that IRDA can go ahead and give its clearance to the deals under Section 6A of the Insurance Act. Narayan told ET that under Section 6A, the 10-year stake dilution limit will not apply.

"What it meant (Section 6AA) was that after 10-years of operation, a promoter of an insurance company shall not hold more than 26% stake. The interpretation of the law was creating confusion and that is why IRDA has come out with a new circular," said an industry expert on condition of anonymity. Reliance Life is looking to double assets under management (AUM) in the next three years.