Mukesh Ambani’s Reliance Industries (RIL) is acquiring Bharti’s 74% stake from Bharti AXA Life and Bharti AXA General Insurance.
In a statement issued by the company, RIL and its associate Reliance Industrial Infrastructure Limited (RIIL) will buy out Bharti’s shareholding from Bharti AXA Group. AXA, a French company and among the Top 10 largest companies in the world on revenues in 2010, and Bharti Enterprises had together, formed Bharti AXA Life and Bharti AXA General Insurance.
While Bharti exits the insurance space, AXA will continue to hold its 26% stake in the company. AXA has also entered into an understanding with Reliance which entitles them to buy additional 24% stakes when the foreign direct investment (FDI) limits are increased.
Companies have been waiting with bated breath for the FDI norms to be relaxed for quite some time now. Once, AXA buys additional stake, RIL and RILL will own 45% and 5% stakes respectively. The remaining 50% will be owned by AXA Group.
The value of the deal between Bharti and Reliance is said to be around Rs 1,665 crore ($370 million). According to media reports, Bharti has received a premium calculated at 12% annualized return on its investment in the company.
As on December 2010, Bharti AXA Life had losses of Rs 1,496 crore as against a paid-up capital of Rs 1,461 crores. Bharti AXA General also had reported a loss of Rs 33.71 crores at the end of the first quarter of 2010-2011.
Mukesh Ambani has been eyeing the insurance sector for quite some time now. On the other hand, Anil Ambani already has a strong presence in this space with Reliance Life and Reliance General Insurance.
Once Mukesh Ambani seals the deal, both the Ambani brothers will directly compete with each other in the life and general insurance space.