Wednesday, December 7, 2011

IRDA to decide promoter stake dilution, foreign subscription in IPOs

Mumbai: The Insurance Regulatory and Development Authority (IRDA) on Thursday notified guidelines for life insurers to raise capital via initial public offering (IPO) or subsequent fund raising from the equity market with several riders relating to promoters’ equity dilution and participation by foreign investors.
IRDA will decide the size of the public issue, it said in a notification. As per the guidelines, promoters of the insurance companies will also be allowed to offload their stake in the company.
The insurance regulator would prescribe “the extent to which promoters shall dilute their respective holding, the maximum subscription which could be allotted to any foreign investors”, said the IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011. IRDA, it added, would prescribe a lock-in period for the promoters to prevent them from exiting the company.
IRDA has stipulated that life insurance firms must be operating for at least 10 years before planning such fund raising. Also no life insurance company should approach market regulator SEBI for IPO without seeking prior approval from IRDA.
After IRDA’s approval, the applicant company would have to file the Draft Red Herring Prospectus (DRHP) with market regulator SEBI within a year, the norms said.
While granting approval, the regulator would take into consideration the company’s overall financial position, its record, the capital structure post issue and reasons for fund raising. In June, IRDA had issued draft guidelines on such listings for public comments.
No issuance and allotment of capital by an insurance company should be, in any form other than as fully paid-up equity shares, the guidelines said.
Besides, insurance companies are expected to have an embedded value of at least twice the paid-up equity capital, and should be fully compliant with the corporate governance guidelines issued by IRDA.
Further, the insurance companies would have to mention in the DRHP the risk factors specific to the insurance companies, overview of the insurance industry, glossary of terms used in the sector and financial statements, among others.
After the insurance sector opened up in 2000, only 23 private companies have entered the life insurance business.
While few companies would immediately become eligible for IPOs, the remaining would have to wait for completion of 10 years of operations.
The insurance companies, which will become eligible to come out with the IPOs, include ICICI Prudential Life, HDFC Standard Life and SBI Life.

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