Religare Health Insurance to Raise Capital Through PE Funding

FDI Cap of 26% will not act as a deterrent in case of foreign funding for Religare Health Insurance. Religare Health Insurance Company Ltd. is thinking of raising capital through Private Equity (PE) funding and is hence in talks with domestic and global private equity (PE) firms. The company wishes to raise around Rs.200 crore in return of a small stake, said one of the two people directly involved in the negotiations. The talks have just begun and the final contours of the deal are yet to emerge.

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      It's a PE deal and the company could raise capital from both domestic and global investors. The norm says that the foreign funds cannot buy a stake in the company if it is more than 26%. But Religare Health Insurance has no qualms in selling more than 26% stake, because of which domestic funds too have been approached.

      The company is negotiating with global investors including LeapFrog Investments, TPG Capitaland General Atlantic.

      The department of industrial policy and promotion has clarified that the 26% cap on overseas investments in insurance companies is applicable to foreign direct investment (FDI), foreign institutional investor (FII) investments and investments from non-resident Indians (NRIs). Many private insurers have suggested that India raise the FDI cap to 49%, but such a change as law is yet to be approved by Parliament.

      Religare Health's current shareholders are Religare Enterprises Ltd, Union Bank of Indiaand Corporation Bank. However, the precise share held by these entities isn't known.

      The count of insurers in India has become decent, there are 28 general insurers in India, including five stand-alone health insurance companies such as Cigna TTK Health Insurance Co. Ltd, Max Bupa Health Insurance Co. Ltd, Apollo Munich Health Insurance Co. Ltd and Star Health and Allied Insurance Co. Ltd.

      Gross direct premium of Indian general insurers has risen at an average annual pace of 17.6% to Rs.57,964 crore in the year ended March 2012 from Rs.11,446 crore in fiscal year 2002, as per a KPMG report released in May. The progress in the general insurance industry has kept pace with the nation’s nominal gross domestic product (GDP), leading to general insurance penetration staying constant in the range of 0.55-0.75% over the last 10 years. The general insurance sector might grow at an average annual rate of 16% to about Rs.194,000 crore by fiscal year 2020 from Rs.57,964 crore in fiscal year 2012.

      The retail segment within the health insurance market is supposedly going to grow at a constant pace due to heightened penetration in smaller cities; replacement of out-of-pocket expenditure with health insurance spends, rising urbanization, demographic shifts and increasing costs of medical procedures.

      The banking, financial services and insurance sector are trying their level best to generate high interest amongst investors, but the FDI cap of 26% in insurance is playing spoil sport and making investments unattractive.

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