The Hindu : Mitsui Sumitomo picks up stake CGICL

Online edition of India's National Newspaper
Tuesday, Apr 15, 2003

Business

Business

Mitsui Sumitomo picks up stake CGICL

By Our Special Correspondent

CHENNAI APRIL 14. Mitsui Sumitomo Insurance Company of Japan has picked up a 26 per cent equity stake in the Chennai-based Cholamandalam General Insurance Company Ltd. (CGICL). The induction of the Japanese company as a financial partner is facilitated when promoter-firms of the Murugappa group renounced their claim in the rights issue of shares floated by CGICL. Consequent to the equity alliance with the Japanese company, CGICL has undergone a name change and re-christened Cholamandalam MS General Insurance Company Ltd. (CMSGICL).

The newly named and transformed joint venture will have an equity base of Rs.142 crores. In its earlier avatar, CGICL had an equity of Rs. 105crores. The Chairman of the joint venture, M. A. Alagappan, said the original promoter-firms belonging to the Murugappa Group were compensated to the tune of $7 million by Mitsui Sumitomo for forgoing their claims in the rights issue. TI had a stake of 75 per cent in CGICL. Cholamandalam Investment held 15 per cent. The balance was spread among other firms in the Murugappa Group.

The Japanese firms will have three representatives on the board of the joint venture. The Murugappa Group will have an equal number of nominees. There will also be a couple of independent directors on the board.

It is perhaps the lone case where an Indian group went into the business of insurance on its own (Reliance, too, has gone into business sans a foreign partner) in the beginning and took on a foreign partner subsequently.

Since the regulator has barred the existing promoters from selling their stakes, the induction of the Japanese firm into the company has to be done through the flotation of a rights issue.

Asked if the Murugappa group would let Mitsui Sumitomo up its stake to 49 per cent, if and when the Government made a policy decision, Mr. Alagappan replied in the affirmative.

The Chairman felt that the joint venture could derive benefits from the Japanese partner in auto insurance, travel and health products.

He was confident that the joint venture could fall back on Mitsui Sumitomo for technology and introduction of new products. It was third time lucky for the Murugappa Group. Couple of its exercises earlier for roping in a joint venture partner came a cropper following the merger-related change of ownerships in those companies with whom it held parleys.

Arun Agarwal, Chief Executive of the venture, said the insurance company had built up a customer base of 40,000 and sold over 25,000 policies since it went operational on October 21 last year.

To a question, he said an exercise was already on to find out if alliances could be struck with auto repair firms as part of its strategy to effectively manage the claim settlement process. With the induction of a joint venture partner, the company was hopeful of writing a premium income of Rs. 120 crores in the first full year of its operation.

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