Mumbai: Axis Bank Ltd, India’s third largest private bank by assets, has decided to wind down its Rs 600 crore private equity (PE) fund focused on infrastructure.
The initial plan was to sell the business, but the bank changed course in the face of stiff resistance by investors in the fund.
Taking a stand: Axis Bank chief executive officer Shikha Sharma had announced her intention to exit the PE business earlier this year. Pradeep Gaur/Mint
“We will not sell. The investments will be exited eventually and the money would be returned to them,” said a senior executive of Axis Bank. “We will not grow the business also as it’s not our core business.”
Axis Private Equity Ltd had raised the fund in 2008.
The investments made by the firm include Rs 54 crore in Shalivahana Green Energy Ltd, Rs 60 crore in Vishwa Infrastructures and Services Pvt. Ltd, Rs 126 crore in Harish Chandra (India) Ltd, Rs 75 crore in Neesa Leisure Ltd and Rs 67 crore in Corrtech International Pvt. Ltd.
After taking over as chief executive of the bank in 2009, Shikha Sharma had announced her intention to exit the PE business earlier this year, citing the reason mentioned above.
Since then the team of Axis Private Equity, headed by Alok Gupta, has attempted a management buyout.
Axis also tried selling the business and received bids from firms such as IL&FS Investment Managers Ltd, Shapoorji Pallonji Group, Darby Private Equity, Edelweiss Capital Ltd and Lanco Group.
Both attempts failed as the investors in the fund, known as limited partners (LPs) in PE parlance, were against the move.
Investors in the fund include Axis Bank itself, besides state-owned lenders such as Corporation Bank, Canara Bank, Bank of Baroda, Union Bank of India, United Bank of India and Punjab National Bank.
As per the agreement signed with the LPs, the investment was for a period of eight years.
The LPs are not comfortable with the idea of the fund being managed by any other firm, said an executive director of a state-owned bank that has invested in the fund.
“In case the fund is wound up, we will ask for our money back with due dividend as per the enabling provision in the agreement,” he said, declining to be identified considering the sensitivity of the issue.
Another investor in the fund said: “The indicative rate of return in the original offer letter was 20%. We will ask for our money back with the said return in the event of the fund being wound up,” he said, also on condition of anonymity,
Globally, banks have been successful in divesting their PE business. Last week, the management team at HSBC Private Equity (Asia) Ltd, the PE arm of HSBC Group Holdings Plc, bought out the PE business from the bank.
Citigroup Inc. has agreed to sell its PE unit to StepStone Group Llc and Lexington Partners, a Reuters report said.
“This is just a one-off case,” said Vikram Utamsingh, executive director and head (private equity group) at audit and consulting firm KPMG India Pvt. Ltd.
“The LPs will be cautious before investing in PE as they have experienced the risk which they had not seen earlier. There will be deeper questions about commitment of institution- or corporate-backed PE firms,” he added.
“Deal-raising will be impacted and captive funds will find it difficult to raise money now,” said a fund manager of a Mumbai-based PE fund who declined to be identified.