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Pru could pay $500m to raise stake in India

Prudential could be forced by investors to pay more than anticipated to increase its stake in its Indian joint venture, following the rapid expansion of the operation and a hefty valuation of its Indian business partner.

The Indian government has pledged to renew efforts to increase the limit on foreign direct investments in insurance companies from 26 per cent to 49 per cent.

Some of the £1bn ($2bn) Prudential raised in a controversial rights issue two years ago was earmarked for raising its stake in ICICI Prudential, the Indian joint venture. ICICI Bank, India’s largest private sector bank, owns the remaining 74 per cent of the joint venture.

Analysts said Prudential may now have to pay about £250m to raise the stake to 49 per cent, significantly more than was anticipated at the time of the rights issue. This values a 49 per cent holding at about £500m, analysts said, implying a valuation for the Indian joint venture as a whole of about £1bn.

Such lofty valuations could add drive to those Prudential shareholders who believe a break-up of the group remains worthy of consideration, despite this option being rejected by Mark Tucker, chief executive, just a month ago.

Analysts have suggested a break-up value of about 900p per share, compared with Prudential’s closing share-price of 746½p, down 6p.

It is believed that the cost of raising the stake has not been set and will be the subject of negotiation with ICICI when the rules are changed.

The increased cost is expected to be driven by the joint venture achieving compound annual growth of 104 per cent over the past three years.

ICICI has not released a value for the holding company that will contain the majority stake in the Indian life assurance joint venture. But this week it cited market estimates that it could be valued at $4bn-$7bn.

The holding company, whose primary assets will be ICICI’s stake in the life assurance joint venture and shareholdings in two other companies, is on track for a listing this year, Kalpana Morparia, joint managing director of ICICI Bank said.

Prudential’s 26 per cent stake will be included.

Source : FT

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