India: Star Health Insurance plans to raise up to $468m via stake sale

Star Health and Allied Insurance Co. Ltd, which focuses on health, travel and accident insurance, is looking to raise up to Rs 3,000 crore in funding through primary and secondary stake sales, two people directly aware of the company’s fund-raising plans said on condition of anonymity. According to the two people mentioned above, Star Health Insurance has appointed a domestic investment bank to advise on the fundraising options, including an initial public offering (IPO) in the near future.

“The company needs the funds to meet its growing capital base and for working capital requirements,” said one of the two people cited above. “The proposed fund-raise will include both primary and secondary stake sales, in which some of the existing shareholders will get a partial exit,“ the person added.

Star Health Insurance is a joint venture between ICICI Ventures, Sequoia Capital, Tata Capital Growth Fund, Alpha TC Holdings and Oman Insurance Company. Indian shareholders own more than 60% stake in the company. Star Health raised its last round of funding in September last year in which two private equity funds—Apis Growth Fund I, a private equity fund managed by Apis Partners LLP, and India Advantage Fund Series 4, a private equity fund managed by ICICI Venture acquired a significant minority stake in the company.

The company did not disclose the size or financial details of the deal. In 2010, ICICI Venture invested Rs 120 crore in Star Health for a minority stake. For the quarter ending 31 March last year (2016), the company clocked net premium of Rs 1,513 crore and booked a profit of Rs136 crore. Responding to an email query, a company spokesperson denied any fund-raising plans in the near future. However, the people cited above said one of the private equity investors is also looking to sell stake in the company.

“The focus is to find a domestic investor who can acquire a majority stake in the venture, as current regulations do not allow foreign investment more than 49% in the insurance sector, but that may change if the company finally decides to go for an IPO,” said the second person. “Star Health has steadily grown market share and been making operating profits for two consecutive years with current gross written premiums in the range of Rs 3,000 crore, an amount that has grown by close to 40% in the last
few quarters,” this person added.

There has been a flurry of activity in the insurance sector in the past year. In April, Religare Enterprises sold 80% stake in Religare Health Insurance Co. Ltd (RHI) to a group of investors led by private equity fund True North for a valuation of Rs1,300 crore. In July, life insurer HDFC Life announced plans to sell 9.57% stake in the company through its IPO. In the same month, the insurance regulator approved SBI Life Insurance Co. Ltd’s application for an IPO seeking to raise as much as Rs 7,000 crore, the largest such share sale by a life insurance company in India.