Fairfax Financial Holdings is discussing whether to sell a 25% stake in ICICI Lombard, India’s largest private general insurance company, in a deal that is valued up to US$1 billion. According to sources, the Canadian firm is looking to let go of its shares and set up a new joint venture in the market.
ICICI Lombard was formed in 2001 as a joint venture between ICICI Bank, the second-largest bank in India, and Fairfax, which was founded by Canadian billionaire Prem Watsa.
Fairfax currently owns 35% of ICICI Lombard and has seen its investment grow strongly in the past five years, with both the company and the general insurance sector having a compounded annual growth rate of over 16%. Insurance penetration in the country remains low, despite the surge in vehicle ownership.
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By dropping its stake to 10%, Fairfax will be free to start a new joint venture in India, according to Reuters
. Indian insurance regulations state that foreign entities cannot own more than 10% in multiple insurance companies. The proceeds from the sale could also go towards Fairfax’s U$4.9 billion purchase of Swiss insurer Allied World
Several private equity firms, such as Blackstone Group and KKR & Co, as well as some Canadian pension funds are being floated as potential buyers for Fairfax’s stake.
On the other hand, ICICI Bank may also be planning to sell a 10% stake in the joint venture, as buyers are more likely to pay a higher price if it meant a larger stake in the company.
Fairfax has already submitted an initial proposal for a new general insurance joint venture to the Insurance Regulatory and Development Authority of India. The initial investment in the venture is estimated at US$50 million.
Former Allianz executive Kamesh Goyal was tapped to lead the new firm and will also have a 15% stake in it.
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