SBI to dilute 2.1% stake in life arm via OFS

The country’s largest lender State Bank of India (SBI) will reduce its stake by 2.1 per cent in its subsidiary SBI Life Insurance (SBI Life) via an offer for sale (OFS).

The OFS will open on June 12 with a floor price of ~725 apiece, which is at a 2.1 per cent discount over the last close. SBI is expected to mop up about $202 million from this exercise.

In a statement to t he exchanges, SBI said its board had approved the divestment of 2.1 per cent stake in SBI Life to achieve minimum public shareholding of 25 per cent, through OFS.

SBI Life is a joint venture between SBI and BNP Paribas Cardiff. At the end of March, SBI held 57.60 per cent stake in the life insurer and BNP Paribas Cardiff 5.20 per cent, thereby taking the promoter stake to 62.80 per cent. Public shareholding in SBI Life as of March was 37.20 per cent.

According to Securities and Exchange Board of India (Sebi) listing norms, promoters have three years from the date of listing to bring down holding to 75 per cent. If the stake exceeds 75 per cent because of acquisitions such as open offer or delisting, promoters get one more year to bring down the stake. According to Sebi norms, SBI Life’s promoter shareholding is well below the minimum threshold.

Last year in June, BNP Paribas Cardiff trimmed its shareholding in the life insurer by selling 2.5 per cent stake. It had sold more than 16.5 per cent stake in the insurer in 2019 for over ~9,200 crore. Shares of SBI Life closed 0.2 per cent lower on the BSE at ~741.45.

SBI Life reported an 8 per cent growth in pre-tax profit for the March quarter at ~522 crore, compared to ~482 crore in the same period last year.

Net profit jumped 16 per cent to ~531 crore from ~458 crore, on account of lower tax provision.

Annualised premium equivalent or APE (a common sales measure for life insurers) declined by about 13 per cent year- on-year (YOY) to ~2,690 crore (11 per cent up at ~10,740 crore for the whole FY20).

However, strong growth in high-margin protection products (up 27 per cent in FY20 and 10 per cent in Q4), sustained improvement in cost ratio, and good persistency (customers’ stickiness) protected the insurer’s operating profitability in Q4.