Indian conglomerate Videocon Industries has decided to exit the insurance business by selling its 51.32% stake in Liberty Videocon General Insurance to Diamond Dealtrade and Enam Securities. The entire value of the deal has not been disclosed by the company. Although the company did not disclose any reasons for the sale, many industry experts attribute that this move is a result of many lenders taking Videocon to the bankruptcy court after mounting debt.
The deal was disclosed today after Videocon submitted a proposal to the Insurance Regulatory and Development Authority of India (IRDAI) seeking approval for the sale. As per the terms disclosed by the company, 26% of Videocon’s stake in the insurance company will be sold to Diamond Dealtrade, a subsidiary of DP Jindal Group, and the remaining 25.32% will be sold to Enam Securities.
The Reserve Bank of India (RBI) recently referred Videocon to the bankruptcy court in order to deal with the massive debt. In August 2017, the RBI released a list of 29 major defaulters in the country. With debt over Rs.47,500 crore, Videocon is one of the major companies named in the list. Most of the public sector lenders in the country have taken steps for the resolution of debt against the company.
While the company has not provided a reason for its exit from the insurance business, the bankruptcy proceedings initiated against it could possibly be a reason for the sale. The sale proceeds from the insurance business may not be sufficient to clear the entire outstanding debt of the company. However, it may provide some relief against the proceedings initiated by various lenders.
Liberty Videocon received approval from IRDAI to commence business in the year 2013. During this time, Videocon held 74% of the joint venture and Liberty Citystate Holdings had the remaining stake. Once the foreign direct investment limit has been increased in India, Liberty bought additional shares in the company and increased its stake.