Bajaj Auto announces details of agreement with Allianz for insurance companies

Bajaj Auto Ltd has announced that the Company has entered into two Joint Ventures with Allianz SE of Germany in 2001 to engage in Life insurance and General insurance businesses, subscribing to 74% and Allianz, subscribing to 26% (the maximum permissible for a foreign partner as per applicable Government Policy).

Certain call options and put options were agreed to between the partners in the JV agreements entered into and these JV agreements were filed with IRDA.

Recently the valuation assigned to the Insurance JVs by some analysts, has assumed substantial and material proportions and, keeping in line with its high Corporate Governance and disclosure standards, the Company wishes to disclose the details of the call & put options in the JVs, as follows:

1. Call options in favor of Allianz:

A. Bajaj Allianz General Insurance Co Ltd (BAGICL)

The Company has been holding 74% equity in Bajaj Allianz General Insurance Company Ltd, a joint venture between the Company and Allianz SE (previously known as Allianz AG and hereinafter referred to as "Allianz") from the date of the initial capitalization of Bajaj Allianze General Insurance Company Ltd on April 23, 2001.

If and as permissible under applicable laws and subject to regulatory approvals required, Allianz SE can exercise call options to increase its holding to 50% from the present 26% in case of Bajaj Allianz General Insurance Co Ltd at a price per share to be determined on the following basis :

a) in respect of shares for which call option is exercised by Allianz up to the expiry of 15 years from the Subscription Date (i.e. up to April 22, 2016), the price per share of Rs 10.00 per share plus interest at 16% per annum compounded annually from April 23, 2001 to the date of payment.

b) in respect of shares for which call option is exercised by Allianz after April 22, 2016, at the highest of the following:

(i) the price per share of Rs 10.00 plus interest @ 16 % per annum compounded annually from April 23, 2001 to April 22, 2016, or

(ii) in case the shares are listed at that time, market price per equity share in case the Company is listed in a recognized stock exchange, or

(iii) in case the shares are not listed, fair value of the Company shares as determined by a mutually accepted accounting firm.

B. Bajaj Allianz Life Insurance Co Ltd

The Company has been holding 74% equity in Bajaj Allianz Life Insurance Company Ltd, a joint venture between the Company and Allianz SE (previously known as Allianz AG and hereinafter referred to as "Allianz") from the date of the initial capitalization of the Company on July 31, 2001.

If and as permissible under applicable laws and subject to regulatory approvals required, Allianz SE can exercise call options to increase its holding to 74% from its current holding of 26% in case of Baja] Allianz Life Insurance Co Ltd at a price per share to be determined on the following basis:

a) in respect of shares for which call option is exercised by Allianz up to the expiry of 15 years from the Subscription Date (i.e. up to July 30, 2016), the price per share of Rs 5.42 per share plus interest at 16% per annum compounded annually from July 31, 2001 to the date of payment.

b) in respect of shares for which call option is exercised by Allianz after July 30, 2016, at the highest of the following:

(i) the price per share of Rs 5.42 plus interest @ 16 % per annum compounded annually from July 31, 2001 to July 30, 2016, or

(ii) in case the shares are listed at that time, market price per equity share in case the Company is listed in a recognized stock exchange, or

(iii) in case the shares are not listed, fair value of the Company shares as determined by a mutually accepted accounting firm.

2. Put options in favor of the Company:

Put options are available to the Company, during the same periods of time, upto the same extent, at the same prices and on the same terms as detailed above.

Rationale:

Keeping in mind the long gestation associated with such ventures, especially Life Insurance, the put option & pricing formula ensure safety of investment & assured 16% return on the same in the initial years, after which valuation / market value based price upside becomes available.

Source : Equity Bulls

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