Big names eye RCL MF stake
Four global giants, including Schroders, Blackstone and US-based Capital, have offered to buy a small stake in Reliance Capital’s mutual fund business as rapid growth in the domestic market continues to lure foreign firms. The Reliance Capital board is believed to have met last week to discuss the offers.
A person familiar with the situation told ET that Schroders, the British fund with nearly $260 billion of assets, Blackstone, the big US private equity fund, and one of the units of US-based Capital have submitted firm offers to Reliance Capital, the parent of Reliance Capital Asset Management.
One more financial investor has also put in a bid, but the entity’s name could not be ascertained. Reliance Capital is expecting a valuation of $1.2 billion, or about 10% of assets under management of Rs 48,830 crore. A Reliance Capital spokesperson declined comment.
A successful transaction would help cement a partnership between Reliance Capital, a fast-growing financial services firm, and one of the world’s biggest money managers. It would intensify competition in the ultra-competitive market with 36 players.
Assets under management in India have more than doubled in the past two years due to a rising market, strong investor appetite and savvy marketing. At the end of April 2005, assets under management (AUM) stood at Rs 1,58,147 crore. By April 2007, the figure had risen to Rs 3,50,441 crore. Sensex rose 125% in this period.
But even this $80-billion industry is a dwarf compared with its peers in developed markets. India’s AUM amount to just 0.5% of the global AUM. Overseas firms, such as BNP Paribas, SocGen and Swiss giant UBS, which have bought large stakes in leading players in the past year, are hoping a continued rise in Indian investor appetite would sustain growth in the coming years.
Reliance is the only large mutual fund owned completely by Indians. Its AUM size three years ago was a mere Rs 9,000 crore. A determined drive to expand distribution and launch of several new schemes helped by a rising market has seen it become the country’s largest player.
A deal at the price Reliance Capital is expecting would make it the most expensive acquisition in the mutual fund industry. This is all the more so as Reliance Capital is only planning to offer a minority stake of 5-10%.
BNP bought 50% in Sundaram Finance’s mutual fund business at a multiple of 7% of its AUM, while SocGen paid a multiple of 8% for a 37% stake in a fund promoted by State Bank of India. UBS recently paid 4% for 100% of Standard Chartered’s business.