Mumbai: US private equity (PE) firm the Carlyle Group has acquired a 9% stake in financial services firm India Infoline Ltd (IIFL) from the open market for an undisclosed amount.
While both firms refused to disclose the deal value, at Wednesday’s stock price, a 9% stake would have cost Carlyle nearly $38 million (Rs 187 crore).
This is the second investment by Carlyle’s buyout fund in India’s financial services sector. It’s first was a $650 million investment in Housing Development Finance Corp. Ltd in 2007. The PE firm, betting hard on Asian financial service companies, has invested more than $2 billion in five deals in countries such as Korea, Taiwan and India.
“We hope to leverage our relationship with Carlyle to continuously grow and expand internationally,” IIFL chairman Nirmal Jain said on Wednesday.
The alliance will benefit IIFL in terms of getting references for large clients and in hiring a strong advisory team, he said. IIFL will not dilute more equity or change the direction of its business, he added.
Global investors are betting strongly on India’s growing financial services sector rather than on the already matured banking sector. In May, Kohlberg Kravis Roberts and Co. LP (KKR) and the International Finance Corporation, the investment arm of the World Bank, together invested Rs 440 crore in Magma Fincorp Ltd, a Kolkata-based non-banking financial company. Singapore’s Sanlam Investment Management (Pty) Ltd invested $10 million in SMC Global Securities Ltd in June.
“In any growing economy, financial services are crucial. In India, there are huge opportunities of offering such services to customers in the country... The population is huge,” said Deepak Srinath, director at investment bank Viedea Capital Advisors Pvt. Ltd.
Financial services are a core industry focus at Carlyle, said Devinjit Singh, managing director, Carlyle Group, adding that the firm is keen on backing more such companies and could include services such as insurance. “IIFL did not want capital, but we wanted to be a part of the company, so we bought the stake from the open market. We like the space,” he said.
There is significant opportunity for PE investors looking to invest in Indian financial institutions because of their low penetration in the country, said Darius Pandole, a partner at PE firm New Silk Route Advisors Pvt. Ltd (NSR).
“Due to the market conditions, the valuations of many listed financial institutions have taken a beating, so they are very attractive for investment,” he said.
NSR bought a majority stake in Destimoney Enterprises Pvt. Ltd, a retail financial services company, in 2008.