InvestorQ : Why are Piramal group and Zurich Insurance bidding jointly for Reliance General Insurance?
vaishnavi mhatre made post

Why are Piramal group and Zurich Insurance bidding jointly for Reliance General Insurance?

vidhya Laxmi answered.
2 months ago

While the Piramal group and Zurich Insurance of Switzerland had originally put separate bids for Reliance General Insurance, they have not taken a decision to jointly bid for Reliance General Insurance. The parent of the insurer, Reliance Capital, is already under bankruptcy proceedings at the NCLT, and this process will involve separating the general insurance business from the parent. The Piramal Group and Zurich Insurance plan to hold about 50% each in this joint venture, which would be structured as a special purpose vehicle (SPV), more from the perspective of tax efficiency, which is available to SPVs.

In the first round of bidding, Piramal had bid valuing Reliance General Insurance at Rs3,600 crore while Zurich Insurance had valued Reliance General Insurance slightly higher at Rs3,700 crore. However, in the first round, the highest bidder was the private equity firm Advent, which had bid Rs7,000 crore for Reliance General. Apparently, RBI and the IRDA are averse to allow private equity firms to own Indian insurance companies considering they are pure investors and not committed to growing the business in India. The joint bid will give Piramal and Zurich a much better chance in the bid. It will also mark Zurich’s India foray.

The final cut could be on the valuations. For instance, Willis Tower Watson, the global valuation experts appointed by the administrator, had pegged the actuarial valuation of Reliance General Insurance at around Rs9,450 crore, which is higher than the highest bids. However, the Committee of Creditors (COC) would at least expect to get the actuarial valuation which means there could be an invitation to rebid given to the parties. As of now there are a total of 14 non-binding bids, either for the full entity or for parts of the company. Both Piramal/Zurich and Advent are bidding for RGIC as a whole entity.

Other potential contenders in the fray include the Gujarat based Torrent group, which is also bidding for the life insurance business of Reliance Capita, which is a joint venture between Reliance and Nippon Life of Japan. Torrent group plans to bid for 51% of the joint venture life insurance company for Rs2,900 crore. It must be remembered that currently, the parent company, Reliance Capital, is undergoing a bankruptcy process at the NCLT. Both the life and general insurance units of Reliance Capital are existing profit making entities. It is estimated that the bid may fall back on Piramal/Zurich combine for business reasons.