Mumbai: The financial services unit of India’s Larsen & Toubro Ltd is in talks to buy Cholamandalam DBS Finance’s domestic mutual fund operation, two sources familiar with the matter said.
“We are working on their behalf,” one source said, referring to L&T Finance, a wholly owned unit of L&T. “We can’t share details at the moment. Let’s wait for the transaction.”
Officials at Cholamandalam DBS, a joint venture between India’s Murugappa Group and Singapore’s DBS Bank that run DBS Cholamandalam Asset Management, could not be immediately reached for comment.
Another source said Edelweiss Capital was the advisor for the asset manager.
The valuation of Indian money managers has fallen from 2007/08 highs. In June, Japan’s Nomura said it would buy a stake in LIC Mutual Fund for about 2.5% of fund’s assets.
DBS Cholamandalam had assets of about $615 million at the end of August, the company’s website showed.
Valuations are likely to come under pressure even more following a recent ban on entry fees, which is widely expected to slow growth, add to distribution cost, cut profitability and delay the path to breakeven for money managers.
The country’s stock market regulator said in July it would abolish front-end or entry fees charged by mutual funds from 1 August, a move aimed at cutting costs for investors and to discourage aggressive selling.
A source in Singapore familiar with DBS said the lender has had a rethink about the India joint venture for some time. The venture laid off staff and cut the number of branches last year.
“It’s about high time we do so,” he said when asked if DBS was planning to divest its stake in DBS Cholamandalam. Cholamandalam DBS shares rose by the maximum daily limit of 10% on Monday to Rs63.35.
A L&T Finance official in Mumbai and a DBS spokesman in Singapore declined comment.
Senior officials at Larsen & Toubro, India’s largest engineering and construction firm, had said last month the diversified company was interested in expanding its presence to asset management and insurance businesses.
Earlier this month, L&T Finance successfully raised about $200 million via a retail bond sale.
Late last year, Religare Enterprises Ltd agreed to buy Lotus Mutual Fund from Singapore state investor Temasek and London-based Sabre Capital Worldwide for about 1-2% of assets under management, according to media reports.
By comparison, Infrastructure Development Finance Co agreed to buy Standard Chartered’s Indian fund unit for about 6% of assets in March 2008. And in 2007, hedge fund Eton Park paid about 13% of assets for a piece of Reliance Capital’s fund arm.
In August, consultant McKinsey said in a report the industry was likley to witness consolidation as smaller players might not be able to withstand stress on profitability.