Bandhan consortium holds advantage ahead of Idfc board meeting
A consortium led by Kolkata-based Bandhan Group and joined by Singapore’s GIC and private equity firm ChrysCapital is likely to have emerged as the lead in the ongoing mega sale process of IDFC Mutual Fund (MF ), several industry sources with knowledge of the matter told Moneycontrol. .
On March 24, Moneycontrol was the first to announce that consortiums from the Bandhan Group and Invesco MF had been selected for the final stage of the divestment exercise led by the investment bank Citi.
Private equity firms Warburg Pincus and Kedaara Capital have partnered with Invesco MF on the offer.
Elaborating on some of the factors working in favor of Bandhan’s bid, a third person told Moneycontrol: “A bank is in the mix that provides clout through distribution and network. They don’t have a team. management team, so it will be easier to integrate with the existing IDFC MF team. There is also a shorter time frame for approvals in this case compared to the other party.”
In December 2021, IDFC First Bank initiated the process of merging IDFC and IDFC Financial Holding Company with itself, an event highly anticipated by market watchers. Both entities are part of the bank’s promoter group. The sale of IDFC MF is considered a precursor to the merger.
Additionally, the cash injected earlier by investor GIC into the Bandhan Group needs to be deployed as the group seeks to go beyond its core business, leverage its customer base and offer a platform to added value.
GIC owns about 7.7% of Bandhan Bank while Temasek owns 1.68%. HDFC owns 9.89% of the lender.
But a fourth person pointed out that Bandhan could not afford to offer an exorbitant valuation: “The markets and the analyst community had reacted negatively earlier because they believed the Gruh Finance takeover was overvalued. Since then, Bandhan has taken a cautious approach. I have long regarded IDFC MF as the only material size target on the market”
It was not immediately clear which of the two parties (Bandhan or Invesco MF) submitted a higher bid in terms of valuation, but after the binding bid stage, Moneycontrol learned that the quantum of shortlisted bids was likely to be above Rs 4,400 crores.
This is expected to be the biggest mutual fund transaction of recent times and follows the recent sale of L&T MF to HSBC MF in December for around Rs 3,188 crore.
The four people above spoke to Moneycontrol on condition of anonymity.
Email queries to IDFC MF, Bandhan Group, Invesco MF and private equity partners went unanswered until press time.
Certainly, unlike the Bandhan combination, Invesco MF has a strong management team and, as an existing player, has a mutual fund license.
The March 24 Moneycontrol report had indicated that Invesco is a successful equity fund and that the target IDFC fund is largely debt-focused, the deal made strategic sense for the former. Additionally, PE Partner Warburg Pincus has an indirect understanding of the MF industry as it backs CAMS (Computer Age Management Services) which debuted in the market in October 2020, the report adds.
Incidentally, according to a recent media report by Business Standard, a whistleblower has filed a complaint with regulators against Invesco MF India alleging irregularities in the management of its fixed income schemes. The whistleblower who was sacked also moved the Bombay High Court, this report adds.
“Invesco seeks to maintain excellent relationships with all of our regulators. We cooperate with any regulatory request (including any review or investigation) in a manner that is transparent and consistent with global best practices,” the fund house said in the report.
On September 17, 2021, the Boards of Directors of IDFC and IDFC Financial Holding Company gave the go-ahead to initiate the process to divest the mutual fund business subject to required regulatory approvals. Interestingly, investors had previously expressed concerns about a delay in the value release exercise.
Admittedly, the market regulator Securities and Exchange Board of India is not comfortable with the acquisition of a majority stake in a domestic mutual fund by a pure private equity fund. This is one of the main reasons why the Blackstone-L&T MF deal fell through earlier. The past position of the regulator explains the mergers between strategic players and private equity funds for IDFC MF.
The size and scale of IDFC MF and its strong management team are seen as the two main reasons why the deal has attracted strong interest.
IDFC MF has around Rs 1.2 lakh crore assets under management (AUM), is profitable (after-tax profit of around Rs 80 crore in the first half of 2022) with 64% of its AUM in fixed income securities and 26% in shares. For FY21, the company reported a net profit of Rs 144 crore, a sharp increase of 81% from the Rs 79.4 crore recorded in FY20, according to reports.
Over the past few years, the domestic mutual fund segment has seen a lot of M&A activity. Apart from HSBC-L&T MF and Sundaram MF-Principal MF deals, the sector has also seen deals such as Zerodha-backed Groww-Indiabulls MF, White Oak-Yes Mutual Fund and Navi-Essel MF.