India’s third-largest private-sector life insurer HDFC Standard Life Insurance Company Ltd may be seeking a lofty valuation of Rs 58,260 crore ($8.96 billion) through its initial public offering (IPO), but its parent firm believes the issue is fairly priced.
Deepak Parekh, chairman of mortgage lender HDFC Ltd, the parent of HDFC Standard Life, said the issue was priced right and investing in insurance IPOs was a long-term bet.
"We have left money on the table. In fact, we didn't take advice from some of our merchant bankers in pricing the issue higher... We have done it fairly. Even then, investing in insurance IPOs is long-term. If you want short-term returns, don't buy. If you are looking for listing day gains, don't buy," Parekh told journalists on Monday.
"With some past insurance issuances, investors didn't make money on day one because the perception was to make listing or quick returns. That didn't happen, and in essence, because the pricing was not correct," he added.
HDFC Standard Life last week fixed a price band of Rs 275-290 apiece for an IPO size of Rs 8,695 crore ($1.34 billion), HDFC Ltd had said in a stock-exchange filing. The IPO will open on 7 November and close two days later.
The insurer joins a growing list of Indian insurance firms – both life and non-life – that have either firmed up plans for an IPO, or already gone public. These include General Insurance Corporation (GIC Re), SBI Life Insurance Co, ICICI Lombard General Insurance, New India Assurance and Reliance General Insurance Co.
ICICI Prudential Life Insurance became the first life insurer in India to go public last year.
Shares of SBI Life and GIC Re are trading below their respective issue prices. ICICI Lombard is marginally higher than its IPO price.
Parekh also said that India's insurance sector was under-penetrated and, therefore, offered huge opportunities. Insurance penetration in India stands at a lowly 3.4% compared to the global average of mid-20s.
"...the low penetration level offers huge opportunities. It was time for us to monetise some stake. We have nurtured the company for last 17 years, of which for 13-14 years the parent firm has continued to infuse growth capital," Parekh said, adding that an HDFC group firm was accessing the capital markets after 22 years.
In July, Max Financial Services Ltd called off a proposed merger of its life insurance business with HDFC Standard Life, ending a one-year-long effort that failed to receive regulatory approval.
A merger would have created India’s biggest life insurer in the private sector. It would have also allowed HDFC Life to get listed on the stock exchanges without an initial public offering that it had planned before initiating the merger talks. However, the deal hit a roadblock late last year with the Insurance Regulatory and Development Authority of India objecting to the transaction structure. The two companies tried to tweak certain terms and conditions of the deal but couldn’t convince the industry watchdog.
While Parekh touched upon the hurdles to the merger, he highlighted the possibility of future consolidation in the insurance space. "There are too many insurance companies in our country. I don't think these many number can survive in one market, so consolidation is also on cards," he said.
HDFC Life, which counts Azim Premji’s private investment arm PremjiInvest among its investors, will sell 299.82 million shares in the IPO. The proposed issue comprises an offer for sale by its joint venture partners, HDFC Ltd and UK-based Standard Life Plc. The two partners will sell a total of 14.97% stake in the IPO.
The company had filed its draft red herring prospectus with the Securities and Exchange Board of India on 19 August. It received regulatory nod on 13 October.
Morgan Stanley, HDFC Bank, Credit Suisse, CITIC CLSA and Nomura are the global coordinators and book running lead managers. Edelweiss, Haitong, IDFC, IIFL and UBS are the other merchant bankers.
HDFC Standard Life, which operates under the banner of HDFC Life, was India's first private life insurer to be created way back in 2000.