Irdai says no to HDFC Life-Max merger

HDFC LIFE AND MAX LIFE HAD ANNOUNCED THEIR MERGER PLANS IN AUGUST LAST YEAR THROUGH A THREESTEP MERGER PROCESS

The Insurance Regulatory and Development Authority of India (Irdai) has denied permission to the proposed merger of Max Life Insurance Co. Ltd and HDFC Standard Life Insurance Co. Ltd (HDFC Life), saying the structure of the deal violates Section 35 of the Insurance Act, 1938, which bars the merger of an insurance company with a noninsurance company.

In separate filings to stock exchanges on Thursday, both Max and HDFC Life said Irdai has reaffirmed its earlier position on the deal in its current structure, following which both companies are exploring other options.

“Further to the representations made to IRDAI, the IRDAI has on June 7, 2017, the authority has reaffirmed its original position regarding Section 35 of the Insurance Act, 1938. HDFC Life and Max Life remain committed to the merger and are evaluating various options,” Max India Ltd informed the exchanges on Thursday morning.

“HDFC Life and Max Life remain committed to the merger and are evaluating various options,” HDFC Life said in a separate statement.

According to two people directly aware of the discussions, both firms have begun reworking the structure of the deal.

“One option could be to directly merge Max Life with HDFC Life but these are mere options as of now and no final decision has been taken,” the second person said, on the condition of anonymity. “But the companies are waiting for the official word,” the person said.

HDFC Life and Max Life had announced their merger plans in August last year through a threestep merger process under which Max Life will first merge with its parent company Max Financial Services, then the life insurance business will be demerged from Max Financial and merged into HDFC Life. The transaction would have led to automatic listing of HDFC Life through a reverse merger process. HDFC Life would hold a majority stake in the combined entity.

In November, however, Irdai referred the deal to the Union law ministry after raising concerns that the current structure of the deal was in violation of Section 35 of Insurance Act, which does not allow merger of an insurance firm with a non-insurance firm. The law ministry, in turn, sought an opinion from Attorney General of India Mukul Rohatgi.

As per the original scheme of arrangement, the deadline for Irdai’s approval was to end in June, while that for court approval in February 2018.

The people cited above said both firms will now seek a fresh deadline once a new structure is finalised.

The potential merger is expected to create India’s largest private sector life insurer, second only to state-run LIC.