Promoters of HDFC Life and Max Life have extended the deadline for the merger of the two insurers by a year to June 2018 because IRDAI has yet to give its approval for the proposed deal.
“The deal is still pending with the insurance regulator, who is taking a legal view on the matter from the AG (Attorney General) through the Finance Ministry," reported The Economic Times citing a person aware of the development.
The merger, announced in August last year, hit a hurdle when IRDAI objected to the merger plan and sought the Finance Ministry's views.
The Finance Ministry then wrote to the Law Ministry for a legal view from the government's top law officer, Attorney General Mukul Rohatgi, on the merger plan, the person quoted earlier said.
Under the proposed M&A proposal, non-banking finance company Max Financial Services was to be merged with Max Life, followed by a splitting of the life insurance business, which would then be merged with HDFC Life.
A senior IRDAI official had said that the IRDAI Act does not allow any merger between an insurance company and a financial services company. Also, there is no provision under the Insurance Act to merge a financial services company with an insurance company, the person said.
The two companies had in November last year informed stock exchanges about reservations raised by IRDAI.
However, a Max Life spokesperson said the company believes that the proposed scheme of arrangement is in accordance with prevalent regulations. “It's not appropriate for us to comment on how soon we will get the approval,. We are working closely with the insurance regulator and continue to be positive about a favourable outcome," the person said.
As per the agreed valuation and exchange ratio, the relative valuation of HDFC Life and Max Life was decided to be 69% and 31%, respectively .
Apart from the IRDAI, the merger will need approvals from the market regulator Securities and Exchange Board of India, the Competition Commission of India, and the court.
HDFC Group was to own a 42.5% stake in the merged entity, with Standard Life holding 24% and Max Group 6.6%. The other big shareholders would have included Mitsui Sumitomo with a 7.8% stake and Axis Bank with 1.2%, according to the proposed merger plan.