Allianz May End Tie-up With Bajaj Finserv Over Stake Row

The testy relationship between Bajaj FinservBSE -2.33 % and Allianz SE is likely heading to a break-up as they failed to come to a deal on giving a higher stake to the German financial services company in their joint venture insurance firms. Bajaj is now lobbying with the industry regulator to block a future entry of Allianz saying that could undermine the existing operations, said people in the know. Allianz decided to walk away from the alliance because Bajaj didn't honour a contract that allowed the German firm to buy more stake in the joint ventures at a price decided on about a decade and half ago, three people familiar with the matter said. Bajaj cited a central bank rule that prescribes transfer of stake at market-determined price to reject Allianz's demand, they said. 
 

"Bajaj has had a meeting with IRDA (Insurance Regulatory and Development Authority) on the differences with Allianz," said an IRDA official. "They discussed issues including not allowing Allianz to compete with Bajaj after exiting the JVs." According to local rules, a foreign insurer that exited India will have to wait for two years to form a new joint venture in the country. However, there is no bar on buying a stake in an existing company. "This is an important and successful venture for us and however, we are not in a position to offer further details," Allianz said in an email, responding to ET's queries. Bajaj didn't respond to an email seeking comment. 

Bajaj owns 74 per cent of their two JVs, Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance. Bajaj Life is valued around Rs 11,500 crore and the general insurance venture about Rs 9,200 crore, according to analyst reports. At this valuation, Bajaj may  have to pay around Rs 5,500 crore to buy Allianz's 26 per cent stake in the two joint ventures. As per a 2001 agreement, the German company has a call option to increase its stake in the life insurance joint venture to 74 per cent from 26 per cent at a pre-determined price if allowed under laws and subject to regulatory approvals. If the option is exercised by July 30, 2016, the pre-determined price will be Rs 5.42 per share, plus interest at 16 per cent per annum from July 31, 2001, to the date of payment. After 2016, Allianz would have to pay the market price. 
 

With India now increasing the cap on foreign holding in its insurance firms to 49 per cent from 26 per cent, Allianz wanted to exercise its call open at the pre-determined price. "After the differences emerged, it is difficult for Allianz to stay invested in the joint venture," said an executive.