Sanlam may struggle to up Shriram stake

2012-10-02 16:20

Cape Town- It could be difficult for Sanlam [JSE:SLM] to raise its stake in Shriram, India’s reputable financial services company, to more than 26% in the future, a Cape Town-based analyst said on Tuesday.

Safs Narker, a banking and insurance analyst at Momentum Asset Management, said the reason for this was the fact that the world’s biggest democracy is a highly regulated market.

“I do not want to speculate. But I think it will not be easy for them to raise the stake further next time,” Narker said, implying Sanlam could forget about becoming a majority shareholders in the company.

His comments were informed by talk in the market that South Africa’s second-biggest life insurer found Shriram and the market in which it operates attractive, and could possibly want to increase its stake to more than 26%.

Shriram is a formidable financial services company in India, and no doubt Sanlam would not like to loosen its grip on the company.

“It has been Sanlam’s strategy outside South Africa and the broader African continent to partner with reputable teams,” Narker said.

Narker made these comments after Sanlam increased its stakeholding to 26% in Shriram in a deal worth R2bn. The deal was funded by Sanlam’s surplus capital.

Heinie Werth, the CEO of Sanlam Emerging Markets (SEM), said the transaction meant a more meaningful exposure for Sanlam in India.  

“The transaction will strengthen our relationship with Shriram,” said Werth. “Strategically, Sanlam previously entered into insurance joint ventures with the Shriram Group to participate in and benefit from the growing financial services industry in India.”

Werth said this transaction was an important and logical next step for SEM in its relationship with Shriram as it would provide Sanlam with access to Shriram’s wider financial services exposure in India and will see SEM diversifying its earnings base.

This includes exposure to credit businesses and other distribution entities.

“We foresee synergies across all these business and more opportunities for client cross-selling,” Werth said.

Werth added the economic environment in India is currently somewhat challenging. But he remains confident of the country’s longer-term potential, and that the investment in Shriram would in time yield attractive returns.  

Sanlam has been in partnership with the Indian Shriram Group in respect of life insurance (Shriram Life) since 2005 and short-term insurance (Shriram General) since 2008. 

Gopalasamudram Sundararajan, the executive director for the Shriram Group, said: “Sanlam’s partnership with us has been catapulted to the next level with this investment. We at the Shriram Group wholeheartedly welcome this mutually beneficial alliance.”

I-Net Bridge reports that Sanlam is also expected to conclude another deal to buy 49% of Malaysian insurer Pacific & Orient.

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