Only 10-year-old life cos can tap markets

KOLKATA: The insurance regulator may have decided to announce guidelines for equity issues by life insurance companies early next month, but companies which are not yet 10 years old will not be able to approach primary markets.

However, companies that are in existence for 10 years, but have not registered net profits for the past three consecutive years, will be able to do so through the book-building process, Irda chairman J Hari Narayan told ET.

"The guidelines for equity issue by life insurance companies will offer the ways and means of approaching the primary markets based on the insurance laws. The laws provide that an insurance company needs to be at least 10 years old to approach the equity market. The Sebi laws provide that companies indeed need to be around for 10 years, but can take the book-building route if they have not made profits for the past three consecutive years," said Mr Narayan.

Companies like Reliance Life Insurance and HDFC Life Insurance have expressed their intention of approaching the primary markets for raising additional funds.

Given the 10-year stipulation for IPO, Reliance Life will have to wait for another year. "We are just about nine years old and if the 10-year time limit remains, we will have to wait for an additional year. We will have to see what the rules stipulate. Nevertheless, we will keep ourselves prepared and prepare the red herring prospectus of Reliance Life for the issue which may hit the market as soon as it is allowed," said Reliance Life Insurance president Malay Ghosh.

Reliance Life had approached the finance ministry some two years ago for allowing it to raise funds from primary markets . It wanted the ministry's permission to skip the 10-year stipulation. Irda, it seems, is not too comfortable with the idea.

HDFC Life's managing director and chief executive Amitabh Chaudhdhry said: "We have just crossed 10 years, but would not approach the primary market in a hurry. A better timing would be the second half of 2011-12 when the market for insurance is expected to stabilise."

Technically, insurers will be able to approach the markets once the guidelines for equity issues by life insurance companies are out. "We hope to provide the guidelines in the next 2-3 weeks,