Insurance Australia Group (IAG) is poised to exit its 74:26 domestic joint venture with State Bank of India (SBI) in SBI General Insurance as a consortium of private equity players Warburg Pincus and PremjiInvest have emerged as front runner to pick up the Australian general insurer's minority stake, sources told Moneycontrol.
"Warburg Pincus and PremjiInvest are in advanced negotiations to jointly buy IAG's 26 percent stake in SBI General Insurance. An agreement is likely to be signed in a week's time and a formal announcement is expected shortly," a source said.
Of this 26 percent stake, PremjiInvest -- the family office of Wipro founder Azim Premji -- is likely to pick up a higher stake than Warburg Pincus and may get a board seat as part of this proposed transaction, another source added. Investment bank Goldman Sachs is managing the stake sale process.
In response to an email from Moneycontrol, an IAG spokesperson said: "In our FY19 result in August, we confirmed that discussions had been held with external parties regarding a potential sale of all or part of our 26 percent interest in SBI General. IAG is in advanced discussions with a number of bidders, which may result in one or more transactions being completed. We will inform the market if or when there is a material update."
Goldman Sachs and PremjiInvest declined to comment and Moneycontrol is awaiting responses from SBI and Warburg Pincus.
In September 2018, SBI had sold four percent stake in SBI General Insurance for Rs 482 crore to Axis New Opportunities Fund and PremjiInvest, valuing the company around Rs 12,000 crore. Based on that valuation benchmark, the 26 percent stake would be valued around Rs 3,120 crore.
SBI General Insurance currently serves three key customer segments -- retail (catering to individuals and families), corporate (mid to large sized companies) and SME. It offers products ranging from motor, health, personal accident, travel and home insurance in the retail space and products like aviation, fire, marine, package, construction and engineering and liability insurance in the commercial space.
This is not Warburg Pincus' first brush with the insurance space in India. It sold its nine percent stake in ICICI Lombard General Insurance in September, which it had purchased from Fairfax Financial Corporation in May 2017 prior to the insurer's initial public offer.
The American private equity giant had concluded its 26 percent stake buy in India First Life Insurance in February. An investment banker familiar with the PE’s plans said: "They like the sector and are now looking for an alternate investment vehicle in the general insurance segment in India."
Commenting on M&A activity in the general insurance space, Abizer Diwanji, Partner and National Leader, Financial Services, EY India, said this segment is not as capital intensive as life business. Under-penetration of the market and rapidly evolving products are other attractive reasons, he added.
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