DLF TO EXIT INSURANCE VENTURE

DLF TO EXIT INSURANCE VENTURE
The Economic Times, August 6, 2009, Page 1

Paramita Chatterjee & Sanjeev Choudhary, NEW DELHI

DLF, the country’s largest real estate company, is looking to exit its life insurance joint venture with US-based Prudential Financial as it continues to sell non-core businesses that demand fund infusion.

The company, still to recover from last year’s realty crash, is now scouting for a potential buyer for its 74% stake in DLF Pramerica Life Insurance in what could be the first deal in India’s fledgling insurance industry, at least two persons familiar with the matter told ET.

The first person, a senior executive in the insurance industry, said DLF wants to exit the insurance business it entered in 2007, as it is loath to spend more money on any business that is not its core area of operation. DLF-Pramerica, which currently has a capital base of Rs 130 crore, is expecting fresh infusion of Rs 150-200 crore from its parents this fiscal to push its market penetration.

DLF retreating from non-core biz

A SENIOR DLF executive confirmed the company didn’t intend to be a long-term player in the insurance business and would exit when it gets an opportunity. He, however, added that DLF is yet to appoint a merchant banker for the same.

A DLF spokesman, however, denied the report. “It is absolutely wrong information, we don’t have any plan to exit,” he said. The two executives could not confirm if DLF would also exit its asset management joint venture with Prudential Financial where the foreign partner holds a majority 61% stake.

They also refused to talk about potential suitors and the valuation the unlisted firm is likely to attract. With none of the 22 insurance companies in the country listed on the market and the industry yet to see an M&A deal so far, no analyst was willing to make a guess on the likely deal size.

Since the onset of the downturn in the realty sector, DLF has been looking at retreating from all its non-core and unviable businesses. The company is exiting wind power business, two township projects at Dankuni in West Bengal and Bidadi in Karnataka and a convention centre project in Delhi.

DLF, which reported a 79% decline in profit and 55% decline in sales for the June quarter, has also put on the block many of its land parcels, including its hotel projects. During the real estate boom years of 2004-2007, DLF ventured into many unrelated sectors just like several other cash-rich developers.

The company tied up with international brands such as Giorgio Armani, Salvatore Ferragamo and Dolce & Gabbana to start retail operations. It also joined Hyderabad-based Gayatri Projects to foray into road development. It unveiled a mega hotel plan, but rolled it back rapidly after the downturn set in the realty sector.

DLF was also among the many realtors including Unitech, Parsvnath and Jaypee that had applied for telecom licences in 2007. Only Unitech received the licence.

Most realtors who went on a diversification spree then are now looking to repay their debt through cash generated by asset sale. In these circumstances, it’s natural for DLF to want to exit insurance, which is a capital-intensive business with huge fund needs. Companies in the sector are injecting capital annually to deal with cutthroat competition.

DLF’s partner may not be expecting its exit plans though. In an earlier interaction with ET, Timothy Feige, co-president, international insurance business of Prudential Financial, said: “We are happy with DLF as our partner and together we are looking to expand our operations in India.” In the first quarter of the current fiscal, DLF Pramerica recorded Rs 4.34 crore in terms of sale of life insurance products. The firm has around 600 employees and 450 agents. It has offices in Haryana, Punjab and the National Capital Region (NCR).

The beginning to this fiscal has not been exciting for the life insurance industry. “Premium collection from new products has fallen in the last few months. For insurers, specially the newer ones, its difficult to sustain as the fund requirement in the sector is huge,” said an executive of a Delhi-based private insurer, on condition of anonymity.

Overall growth in the life insurance industry remained almost flat, with private insurers reporting a decline of 20% in the category. They clocked Rs 5,427 crore during the first three months of fiscal while the figure was much higher at Rs 6,795 crore last year.

Currently, the life category constitutes only around 4% of the total GDP in the country. The FDI limit in the insurance space for foreign players is capped at 26% but the government is planning to raise it to 49%.