Piramal and Zurich Insurance to jointly bid for Reliance General

The Piramal group, owned by Ajay Piramal, and Zurich Insurance of Switzerland have taken a decision to jointly bid for Reliance General Insurance. Now, Reliance General Insurance is a subsidiary of Reliance Capital, which is already under bankruptcy proceedings so this will involve separating the general insurance business from the parent, Reliance Capital. It is proposed that Piramal Group and Zurich Insurance would hold about 50% each in this joint venture. The JV would be in the form of a special purpose vehicle (SPV), which would be a tax efficient method and around Rs75 crore has been earmarked as deposit amount.

There is an interesting background to this deal. Earlier, Both Piramal Group and Zurich Insurance had bid individually for Reliance General Insurance. At that point of time, Piramal had bid valuing Reliance General Insurance at Rs3,600 crore while Zurich Insurance had valued Reliance General Insurance at Rs3,700 crore. The highest bidder had been PE firm Advent, which had bid Rs7,000 crore for RGIC. However, IRDA is not in favour of giving ownership of insurance franchises to PE funds. Now with the combination of Zurich and Piramal making the bid, it could also mark the entry of Zurich into Indian insurance space.

That could still get complicated because now the battle becomes a two way battle between Zurich plus Piramal on one side and Advent on the other. However, IRDA and RBI may continue to be wary of handing over insurance companies to PE fund ownership. The administrators had appointed global valuation expert, Willis Tower Watson, to arrive at the actuarial valuation of Reliance General Insurance. As per the actuarial valuation, the 100% stake in Reliance General is pegged at Rs9,450 crore and currently both the bids are below the actuarial valuation. Hence there could be an invitation to rebid given to both parties.

After the Committee of Creditors (COC) extended the dates for filing the bids at the request of the bidders, a total of 14 non-binding bids have been received for Reliance General Insurance for the overall business and for parts of the business. For instance, 6 companies had submitted bids for the entire company, while the other bidders had submitted bids for its multiple subsidiaries or parts of the business of Reliance General Insurance. Zurich, Advent and Piramal are among those who have submitted bids for the full entity.
There are also other potential contenders in the fray with fairly deep pockets. For example, the Gujarat based Torrent group (already an initial bidder), is now planning to make a separate offer for Reliance Nippon Life Insurance Company (RNLIC), a 51:49 joint venture between Reliance Capital and Nippon Life of Japan. The administrator had also sought offers for 51% stake in Reliance Nippon Life Insurance. The embedded value of Reliance Nippon Life Insurance is pegged at Rs5,800 crore and Torrent is planning to make a bid worth Rs2,900 crore to acquire 51% of the life insurer.
The parent company of all these financial services companies, Reliance Capital, is currently undergoing a bankruptcy process at the NCLT. The administrator had sought offers for the entire company and for its various business clusters. During the process, there were no offers received for the life insurance business while there were several bidders interested for the general insurance business and also for the entity as a whole. Incidentally, both the insurance companies of the Reliance ADAG group are profit making companies and hence have managed to receive good response from the bidders.

A lot would depend on how the regulators view bids from PE firms. If the regulators are not too willing then the bid may fall back in the hands of the Piramal / Zurich Insurance combine. That would give a well-capitalized parent as well as an Indian partner with a strong balance sheet.