HDFC, Max Likely to get Board Approval for New Merger Scheme

The boards of HDFC Life and Max Life Insurance are set to approve a new scheme of arrangement on Monday (today) after the insurance regulator told them it wasn't in favour of the current merger terms as the listed parent of the second company has a contingent liability related to its erstwhile telecom business.

Under the new proposal, Max Life will be folded into parent Max Financial Services (MFS), which will then be split into two parts - insurance and a residual business that will carry the contingent liability.The insurance unit will be combined with HDFC Life, leading to the listing of the merged entity. MFS had a consolidated contingent liability of Rs 572 crore in FY14-15.

The Analjit Singh-promoted Max Group has previously been a significant stakeholder in Vodafone and Hutchison Max Telecom. "Insurance is different to other businesses as policyholders' funds are involved.If any litigation arises with regard to the contingent liability, the policyholders shouldn't be impacted as they have nothing to do with the merger," said a senior Insurance Regulatory and Development Authority (Irda) official.The contingent liability has to be borne by shareholders and not fall on policyholders, the official added. The boards will finalise the all-important swap ratio between the two groups that is likely to be in the range of 60-65:40- 35 with HDFC Life taking control of entity, which will also retain that name, said people aware of the matter.

The merger will not only create the largest insurance company in the private sector, it will also enable investors to exit at a premium once the merged entity gets listed. It's seen as having a market value of about Rs 50,000 crore or higher.The earlier deal had involved the amalgamation of Max Life into Max Financial and the combined entity along with the contingent liability being merged with HDFC Life. Since the merger was the first of its kind in the insurance sector, "we have taken the help of experts to evaluate the scheme of arrangement," said the Irda official.