Bangalore/Mumbai: Financial services firm Avendus Capital Pvt. Ltd is in talks to acquire a non-banking financial company (NBFC) that can help it offer debt to mid-cap firms, said three people aware of the discussions, speaking on condition of anonymity.
“Avendus Capital plans to build a loan book of $100 million (around Rs.550 crore) in three years with this NBFC,” one of them said.
The acquisition will be funded through internal accruals, this person said. It could take about two months to close.
Avendus Capital officials did not answer phone calls made over the past several days or reply to an email sent on Monday morning.
Mumbai-based Avendus Capital offers financial advisory and wealth and alternative asset management.
Its investment bank, among the largest homegrown ones in the country, has ranked among the top 10 banks in India by number of transactions since 2008.
The investment bank helped Avendus build relationships with several mid-cap firms that it can now leverage to provide loans, a second person said.
“Funding needs of mid-cap companies are huge and promoters don’t want to dilute equity each time. Offering debt seems like a logical step and Avendus has been looking at various ways and methods to cater to them,” said this person, one of the three mentioned above.
This is the first time Avendus will shift from a fee model to a balance sheet-based investment model, said the third person cited above. “With their investment banking and wealth management business, they now have the balance sheet to play with,” he said. Domestic financial firms have over the past few years become more interested in running their own NBFCs for several reasons, say experts.
For one, NBFCs are a good proxy for investments in the highly regulated banking sector. (There have been instances of NBFCs getting banking licences; for instance, Kotak Mahindra Bank Ltd began as an NBFC.)
These firms also get opportunities to lend to sectors such as power and real estate to which banks are reluctant to offer debt financing, either due to regulatory issues or high potential risk.
Furthermore, private equity firms are highly interested in the NBFC business. Kohlberg Kravis Roberts and Co. (KKR), one of the world’s largest PE firms, offers debt to Indian companies through its NBFC, KKR India Financial Services Pvt. Ltd. Last year, US PE firm Warburg Pincus and International Finance Corp., an arm of the World Bank, jointly invested $50 million (around Rs.275 crore) in Jaipur-based Au Financiers (India) Pvt. Ltd.
For firms that offer a bouquet of diversified financial services, it makes sense to get into the lending space, said Amit Banka, managing director of Unilazer Ventures Ltd, an investment firm. “By setting up NBFCs, these firms can not only raise funds from the public but also do securitized lending while simultaneously support their other businesses in the financial services space,” said Banka.