Local insurers say they havent collected enough rent

ET reports

Higher FDI in insurance may have to wait

Local Insurance JV Partners Want To Wait For Some More Time To Get Better Valuation From Stake Sale

THE Left parties may find an unlikely ally in opposing the hike in FDI in insurance — Indian promoters of insurance joint ventures. They may well find themselves on the side of the Left parties, albeit for different reasons. Even as the government is trying hard to push ahead with the hike in FDI in insurance, some of the Indian promoters in these joint ventures are not exactly lapping it up.

Once the FDI hike in insurance is notified, Indian promoters will have to reduce their stake to 51%. Some of the contracts in joint ventures are open where the method of transiting from 26% to 49% is not clearly laid out. Come the hike in FDI, the Indian promoters may not want to divest the 23% in favour of the existing foreign promoter, unless there is an explicit undertaking to this effect in the original agreement. It is also known that some of the foreign promoters have paid a premium for Indian brands.

Big Indian promoters have in the past have approached the government in order to buy time. “They would rather wait till valuation climb further and then get a better return on their equity,” a source in the government said. With a growth of around 150% year-on-year — the valuations of most insurers have silently grown by between 20% and 60%, and are poised to more than double by 2010, according to a recent study by Merrill Lynch.

Businessmen are not actually 'unlikely allies' to left parties when it comes to protectionism, as other entries under this label would show.

Time again to quote Raghuram Rajan, who said in an interview to IE sometime back: "We have allowed foreign entry. But we still keep making conditions. Foreign entry only if you have tie-ups with local entrepreneur. Sometime it is beneficial since local skills are needed. Sometime, it just holds up the foreign investor and forces him to share 26-30 per cent with the local incumbent. Three years down the line, with the local incumbent providing nothing, he buys out the local incumbent. The guy has got rent, and walks off with a pile of money. We have to figure out where it makes sense."