HDFC Life partner Standard to offload 5% stake

Private sector life insurer HDFC Life shareholders remain unmoved by the decision of UK’s Standard Life to cut its stake in the largest life insurer by market capitalisation, through block deals to raise up to 1,960 crore, according to a term sheet issued by BofA Securities.

Standard Life will sell stake in HDFC Life at 490–501.35 per share on June 4. The UK-based firm has divested nearly 17% stake in HDFC Life since January last year. Standard Life held 29.25% stake as on December 2018, which has reduced to 12.25% at the end of March 2020. Post Thursday’s deal, Standard Life will hold 10.27% in HDFC Life.

In October, Standard Life sold 4.96% in HDFC Life at 575.15 apiece to raise about 5,750 crore. Previously, it divested 3.2% in HDFC Life in August for 3,100 crore and a 4.93% stake in March.

HDFC Life experiences back to back stake sale by its promoters. On Wednesday, Housing Development Finance Corporation (HDFC), the promoter of HDFC Life sold 26 million shares of the insurance company worth a little over Rs 1,274 crore through an open market transaction.

The shares were offloaded on an average price of Rs 490.22 apiece. At the end of the March 2020 quarter, HDFC held 51.44% stake in the life insurer.

The Reserve Bank of India had asked HDFC to lower stake in HDFC Life Insurance and HDFC Ergo General Insurance to 50% or less, the housing finance company had said in a regulatory filing last month. It has time till December 16 this year to lower its stake in HDFC Life Insurance.

India is 10th largest life insurance market worldwide and 5th largest in Asia with Rs 4.6 trillion in total premium business. Penetration and density of life insurance in India however, continues to be low (2.8%), which provides ample scope for growth. Combined with better demographics and lower social security benefits (vs. developed economies), this translates into optimistic outlook for savings products in life insurance.

Growth trajectory of life insurance products is expected to be significantly stronger over the next five years led by gradual growth in economy and structural drivers like rising life expectancy, increase in share of working population, healthcare spending, and pension needs

However lockdown and economic slowdown is expected to make FY21E a challenging fiscal. We believe that FY21 would be a challenging year in terms of maintaining the renewal pipeline.

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