The regulator has not agreed to the ‘value creation options’ condition that allowed Axis Bank to exit at a fixed price. In April, the private bank had agreed to hike its stake in the life insurer to 30% for Rs 1,600 crore.
Meanwhile, the insurance regulator has separately come out with new norms for transfer of shares by listed and unlisted insurance companies. In listed company transactions, which involve a stake in the insurance company of more than 1% but less than 5%, the buyers, fit and proper declaration has to be provided.
Also, the seller should immediately inform the deal to the regulator. For transfers above 5%, the seller and buyer have to take prior permission from the Irdai through the insurance company. The new norms will also apply for the creation of a pledge on shares.
In a communication to the stock exchange on Thursday, both Max Financial Services and Axis Bank said that, based on correspondence from Irdai, Axis Bank and Max Life have agreed to make some changes to the value creation options and factor in some alternate mechanisms, subject to regulatory approvals and as may be permitted under applicable law.
In terms of the April 2020 agreement between Max Life and Axis Bank, if the value creation options are not consummated within 63 months of the closing of the deal, Axis Bank can exercise a put option with Max Financial — parent of Max Life — to sell its shares in the insurance company at a Rs 294 per share.
According to banking sources, despite acquiring a stake, the deal would have been capital-accretive to Axis Bank as it would earn a steady revenue by way of commissions from selling life insurance.
Axis Bank can exercise a put option on Max Financial to sell all its shares in Max Life at a price of Rs 294 apiece within nine months of such a move. In terms of the earlier agreement, Max Financial was to divest a 28.6% stake in its insurance arm for Rs 1,600 crore, which values the company at Rs 5,667 crore. Max Financial, which is a holding company for Max Life, had a market cap of Rs 15,350 crore on Thursday.