BackBain Capital picks up 10% stake in L&T Finance for `1,300 crore
Besides investing Rs708 crore in L&T Finance through preferential shares and warrants, Bain also buys 86 million shares from parent firm L&T
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Mumbai: Private equity firm Bain Capital has bought close to a 10% stake in L&T Finance Holdings Ltd, an arm of Larsen and Toubro Ltd (L&T), for a little over ₹ 1,300 crore in two separate transactions.
As part of the deal, Bain Capital is investing 708 crore in L&T Finance through the issue of preferential shares and warrants, the company said in a statement to the exchanges. This will translate into 5.27% of the post-issue equity share capital of L&T Finance.
In addition, Bain Capital bought 85.2 million shares, or a 4.95% stake, in L&T Finance from parent firm L&T through an open market transaction. The share sale via the exchanges was concluded at an average price of ₹ 70 per share, implying a deal size of ₹ 597 crore.
“The primary transaction is of capital raised by L&T Finance by diluting a little more than 5% through a primary issuance of shares and by way of warrants. In addition to this, Bain has taken additional exposure indirectly by buying from L&T from the market," said N. Sivaraman, president and wholetime director at L&T Finance, adding that Bain will effectively hold a little more than 10% following the conversion of the warrants.
Sivaraman said the deal will help the company raise capital to fund its growth and also allow L&T to divest some of its holding in the finance firm.
“Subject to all necessary approvals, it is proposed to issue an aggregate of 95.66 million equity shares and warrants at ₹ 74 per share/warrant, amounting to an infusion of ₹ 707.80 crore in the company and constituting 5.27% of the post-issue equity share capital of the company on a fully diluted basis," L&T Finance said in the statement.
The warrants may be exercised by Bain Capital within a period of 18 months from the allotment date or even as early as six months from allotment, based on the company’s capital requirement, L&T Finance said.
Sivaraman said that the capital-raising will help L&T Finance fund its growth over the next few years.
“As we see it, the decisions that have been taken by the government should help the economy return to 8-9% growth. This, in turn, will help us grow our balancesheet. A CAGR (compound annual growth rate) of 20% over the next three years seems quite likely," he said.
For the quarter ended 30 June, L&T Finance reported a 15% increase in net profit to ₹ 192 crore. The company’s wholesale loan book as of 30 June rose 29% to ₹ 23,352 crore from a year ago while its retail loan book was at ₹ 25,867 crore, up 14% year-on-year. Following the deal, L&T will reduce its stake in L&T Finance to about 62.5% following the conversion of the warrants. L&T has so far held 72.5% in its finance subsidiary.
At present, Mace Cipef Ltd, the investment arm of US-based PE fund Capital International Private Equity Funds, holds a 3% stake in L&T Finance Holdings.
On Monday, L&T Finance Holdings shares slid 2.55% to close at ₹ 66.85 on the BSE on a day the benchmark Sensex fell 0.10% to 26,192.98 points.
Bain Capital, an active investor in listed entities, invested $550 million in Hero Investment Pvt. Ltd in March 2011. The money—part of ₹ 4,000 crore that the private equity firm invested along with Lathe Investment Pvt. Ltd, a unit of the Government of Singapore Investment Corp. Pte Ltd—was used by the Munjal family-controlled Hero group to acquire Honda Motor Co.’s 26% stake in Hero Honda Motors Ltd, since renamed Hero MotoCorp. Ltd.
In November 2014, Bain Capital sold a 4.27% stake in Hero MotoCorp. for $400 million. It now has a 1.5% stake in the company.
In the recent past, several leading investors have invested heavily in listed entities, especially in non-banking financial companies (NBFCs).
In June, Piramal Enterprises Ltd acquired a 9.99% stake in Shriram City Union Finance Ltd, the retail-focused NBFC of the Shriram Group, for ₹ 790 crore.
In May, Apax Partners Llp acquired a 20.37% stake in Shriram City Union Finance by buying shares held by TPG Capital in a secondary transaction worth ₹ 2,366.27 crore.
“As compared to an ab initio (from the beginning) evaluation of private enterprises, investment in listed entities has a lower risk element; the business and the company are better reported. It is a case of success breeding success," said Kalpana Jain, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.
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