Paytm’s links with Chinese investors might have halted approval by Irdai
The proposed buyout of general insurance company RahejaQBE by Paytm Insuretech has not found favour with the Insurance Regulatory Development Authority of India (Irdai), sending the deal back to the drawing board again.
The rejection of the deal will hamper the investment plans of several domestic and multinational insurance companies like Swiss Re that are hoping to expand their presence in India’s fast-growing general insurance business. The deal would have also tied in with the government relaxing foreign direct investment (FDI) limit in the sector from 49 per cent to 74 per cent in the FY22 Budget.
The Paytm Insuretech deal was announced in July 2020 and its closure was expected by the end of FY21, with IRDAI approval. But it has been extended repeatedly, while One97 Communications, the parent company of both Paytm and Paytm Insuretech, has tried out various investment options for a 100 per cent buyout of RahejaQBE.
It is learnt that the IRDAI is not comfortable with the investment pattern offered by One97 Communications mainly because Chinese companies like Ant Financial have invested in it. The Government of India feels that insurance is a sensitive sector and, therefore, a Chinese exposure in it is a problem.
The deal, as communicated to the Bombay Stock Exchange in July 2020, was that QORQL Pvt Ltd, an investment company where Paytm managing director and CEO, Vijay Shekhar Sharma, has a majority stake, would acquire 100 per cent of the paid-up equity share capital in Raheja QBE for Rs 568 crore. Sharma owns 51 per cent stake in QORQL, while 49 per cent is held by Paytm.
To get around the Chinese problem, Paytm offered a loan of Rs 740 crore to Sharma’s QORQL in June this year to finance the deal. This was in response to IRDAI’s queries regarding its investment arm’s source of funding.
When this too did not find favour with the regulator, the bidders offered a revised buyout plan. Paytm Insuretech, a wholly owned subsidiary of One97 Communications, would buy 100 percent stake in RahejaQBE. Paytm Insuretech also brought in the world’s largest reinsurer, Swiss Re, into the deal to make it attractive for the IRDAI. In October last year, Swiss Re announced that it would pick up a 23 per cent stake in Paytm Insuretech for about Rs 920 crore. It is understood that if the RahejaQBE buyout goes through, Swiss Re will substantially raise its stake in Paytm Insuretech.
This was also confirmed in the press release issued by Paytm: “Swiss Re is investing alongside Paytm’s Vijay Shekhar Sharma. This follows the announcement of the acquisition of Raheja QBE by Paytm Insuretech Pvt. Ltd. The investment by Swiss Re and the acquisition of Raheja QBE by Paytm Insuretech Pvt Ltd are subject to regulatory approvals,” the statement said.
In an email response to Business Standard, Paytm said, “The application with revised shareholding structure is under process with the regulator and we are engaged in responding to their queries. We hope for approval soon.”
However, the IRDAI is not comfortable with the proposed joint venture either, since the One97 Communications’ Chinese links will continue. It has also looked askance at the conditional investment plans and has consequently put the deal in abeyance. Emails and calls to the IRDAI in this regard have remained unanswered.
One-and-a-half years after the deal was announced, the delay is hurting RahejaQBE, too. Australian insurer QBE had confirmed that it would exit its minority 49 per cent stake in the joint venture (JV) for $76 million. CEO Pat Regan, after taking charge of the QBE Group in January 2018, had announced his plan to “simplify” the company’s business model in all geographies. The exit from the JV was part of that drive. But now that has got held up.
As per the latest regulatory filings, RahejaQBE has a market share of 0.17 per cent as of November 2021. The niche player in specialised insurance covers is recording massive losses in its business. Data for the 2nd quarter of the current financial year (April to September, 2021) records a loss of Rs 56.9 crore, an almost 87 per cent jump from the same six-month period last year. This is despite a remarkable 82.74 per cent rise in premiums received in this financial year.
Emails to RahejaQBE from Business Standard have also not been answered.
The Paytm Insuretech-RahejaQBE deal could have been a test case for the liberalised insurance investment rules that the government rolled out in Budget 2021, when it raised the FDI cap in insurance companies from 49 per cent to 74 per cent.
Incidentally, the IRDAI has been without a chairman for the better part of 2021. Debasish Panda, secretary, department of financial services, and one of those who would have cleared the appointment for the post, is also set to retire this month. The government has not named successors to any of these positions.