Kotak Bank buys out British partner Old Mutuals’ 26% stake in insurance arm

A month after announcing a Rs 5,000-crore capital raising plan to drive inorganic growth, Kotak Mahindra Bank (KMB) on Friday announced a Rs 1,292-crore buyout of the British partner Old Mutual's 26 per cent stake in its life insurance arm. The fourth largest private sector lender will become the 100 per cent owner of the 16-year-old Kotak Mahindra Old Mutual Life Insurance post acquisition, which bucks the trend of foreign partners increasing their stakes after foreign holding norms were hiked to 49 per cent in December 2015. As part of the deal, expected to be closed over the next quarter or so, Kotak Bank will be paying Old Mutual Rs 1,292.7 crore for its 26 per cent stake in the joint venture.

Old Mutual, undergoing an organisational revamp, approached the bank asking if it was interested in buying back the stake, Kotak group's president for asset management, insurance and international business Gaurang Shah told PTI.

"From our perspective, we have been saying for sometime that we are actively pursuing opportunities to deepen our franchise all over the country. It is more of matching of strategic interest of both the partners," he added. He hinted that the payout will happen once the bank raises money through the qualified institutional placement.

However, shareholders weren't enthused with the deal announced around 6 AM and the scrip shed 1.47 per cent to close at Rs 901.10 on the BSE, as against 0.37 per cent correction in the benchmark. And this battering came a day after they lapped up the stock after a 40 percent rise in net. But Shah claimed the transaction is "value accretive" and will give it a lot of room to grow in future. He said it is a profitable business which reported a Rs 300 crore bottomline last year and has seen a growth of 20 per cent every year in profits over the last four years.