HDFC ERGO-Apollo Munich Merger To Create India’s Second Largest Private Health Insurance Firm
Apollo Munich shareholders will get HDFC ERGO shares once the merger is completed, but a swap ratio hasn’t been announced yet.
Housing Development Finance Corporation Ltd. will buy a majority stake in Apollo Munich Health Insurance Company Ltd. for Rs 1,347 crore—a move that paves the way for merging it with its general insurance business HDFC ERGO.
In the first step, HDFC will acquire 51.2 percent stake, or 18.39 crore shares in Apollo Munich from the Apollo Group for Rs 1,346.84 crore. This transaction will be subject to regulatory approvals from the National Housing Bank, Insurance Regulatory and Development Authority of India, and the Competition Commission of India.
The merger is expected to be complete in four months.
In the second step, Apollo Munich shall be merged with HDFC ERGO General Insurance Co. Ltd., in which HDFC owns 50.49 percent while Germany’s Ergo International AG holds the rest.
The shareholders of Apollo Munich will get shares of HDFC ERGO once the proposed merger becomes effective, said a statement issued by HDFC ERGO. As yet, no details have been shared regarding the share swap ratio, etc.
This second part of the HDFC-Apollo Munich deal will be subject to a final approval by the IRDAI, shareholder approval and a nod from the National Company Law Tribunal. It’s expected to be completed within nine months, the filings said.
The boards of HDFC and the Apollo Group have approved this two-step merger deal in meetings held Wednesday.
The merged insurance entity on a pro-forma basis has a combined market share of 6.4 percent of non-life insurance industry, with 308 branches across the country. This also makes the combined entity the second-largest private insurer in the accident & health segment with a market share of 8.2 percent.HDFC Press Statement
The penetration of health insurance in India is still at a very nascent stage compared to the global average but is expected to drive growth of the general insurance industry in the times to come, said Deepak Parekh, Chairman of HDFC and HDFC ERGO General Insurance, in a media statement. “This transaction will strengthen the HDFC group’s commitment to the growing health insurance segment.”
Agreed Ritesh Kumar, managing director and chief executive officer at HDFC ERGO. Health insurance, he said, is the fastest growing segment within the general insurance space. While the general insurance space is growing at an annualised rate of 17 percent, the health insurance segment is rising at 24 percent, Kumar told BloombergQuint over the phone.
Our expectations is that health and accident [insurance] combined would emerge as the largest segment within the general insurance space. That’s the core rationale for the deal.Ritesh Kumar, MD And CEO, HDFC ERGO
Shobana Kamineni, chairperson at Apollo Munich, said the deal with HDFC ERGO was done so that both companies could work with the same partner, that is Munich Re. “This was not a forced sale. This is a strategic exit.” Also, the deal would help Apollo reduce its debt, she said.
Apollo Munich is a 51:49 joint venture of Apollo Hospitals Group and Munich Health (Munich Re’s health business segment). Apollo Hospitals holds approximately 10 percent and Apollo Energy holds 40.4 percent of Apollo Munich.
“With this transaction, we are very much looking forward to further strengthening our ties with HDFC Group and consolidating our presence in India,” Markus Riess, chairman ERGO Group AG Germany and member of the board of Munich Re, said on behalf of Munich Re.
According to Nidhesh Jain, insurance analyst at Investec, HDFC’s acquisition of a 51.2 percent stake in Apollo Munich for Rs 1,346.84 crore is at very reasonable valuations.
“The acquisition is at very reasonable valuations, an EV to gross written premium ratio of 1.23 is lesser than 1.5x valuation Star Health got and is on par with 1.2x for Max Bupa. From HDFC’s perspective, it’s at a good price and will make HDFC ERGO a sizeable player in non-life sector,” said Jain.
The deal to build a larger presence in the non-life insurance business comes three years after HDFC failed to do the same in the much bigger life insurance sector. In August 2016 the HDFC board approved the merger of Max Life and Max Financial Services with its insurance arm HDFC Standard Life Insurance Co. Ltd. The merged entity would have created the country’s biggest private sector life insurer but failed to muster regulatory approval.
Watch the complete interview with Apollo Munich’s Shobana Kamineni and HDFC ERGO’s Ritesh Kumar here: