June 11 (Bloomberg) -- Reliance Industries Ltd., India’s biggest company by market value, will acquire Bharti Enterprises Ltd.’s stake in its general and life insurance joint ventures with Axa SA, Europe’s second-largest insurer. The transaction amount wasn’t disclosed.
Billionaire Mukesh Ambani’s Reliance is seeking to expand in the financial services business as demand increases in the world’s second-fastest growing major economy. In March, Reliance announced an agreement with D.E. Shaw & Co., the $20 billion hedge fund founded by David Shaw. The two plan to start stock- brokerage and private-equity businesses in India.
Reliance is looking to diversify its business as earnings growth from its core oil and gas business slows. The company missed analysts’ expectations in the quarter ended March 31 with a 14 percent increase in net income, the least in six quarters.
“The revenues from the oil and gas business will not increase substantially and so the company needs to look for new streams of business,” said Kishor Ostwal, managing director of CNI Research (India) Ltd., a publicly traded equities-research provider in Mumbai. “They have announced that they want to enter the financial business arena and this is a progression in that direction.”
Reliance Industries fell 1 percent to 944.5 rupees at the 3:30 p.m. close in Mumbai yesterday. Reliance Industrial Infrastructure shares gained 2.7 percent, the most in more than two months, to 569.45 rupees. The announcement was made after the close of markets.
Reliance will hold 57 percent and Reliance Industrial Infrastructure Ltd. 17 percent in the life and general insurance companies. Paris-based Axa will continue to hold 26 percent in the ventures, the maximum allowed by Indian laws. It will have the option to acquire an additional 24 percent in the businesses, if and when local regulations allow greater foreign ownership in insurance, a statement from Reliance said.
Bharti, the holding company for India’s biggest mobile- phone operator, Bharti Airtel Ltd., and Wal-Mart Stores Inc.’s partner in the country, entered the insurance business in 2006.
“The decision is in line with Bharti’s strategy of focusing its energies and financial resources in businesses where it is making a deeper impact,” Bharti said in an e-mailed statement announcing the sale yesterday. “Currently, the financial services ventures do not fit into Bharti’s long-term growth plans.”
Bharti, controlled by billionaire Sunil Mittal, will use the proceeds from the sale for other group businesses, the statement said, without providing more information.
In the year ended March 2011, Bharti AXA Life collected premiums of 7.9 billion rupees ($177 million) and Bharti AXA General Insurance 5.5 billion rupees, the statement from Reliance said.
D.E. Shaw will join with Reliance to offer investment banking, derivatives trading and alternate-asset management next year, Louis Salkind, managing director at D.E. Shaw, said in an interview in Mumbai on May 26.
D.E. Shaw India Financial Services Pvt., the venture with Reliance, will hire 100 people in the next 12 months to 18 months, and raise funds locally by the fourth quarter to invest in private companies, Salkind said. The company will build a platform for trading stocks and derivatives this year for large investors.
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