Reliance Cap looks at investment banking, mulls insurance IPO

Reliance Cap looks at investment banking, mulls insurance IPO
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First Published: Tue, Jul 21 2009. 10 38 PM IST
Updated: Tue, Jul 21 2009. 10 38 PM IST
Mumbai: Anil Ambani, promoter and owner of Reliance Capital Ltd (R-Cap) on Tuesday made a series of announcements for his financial services firm, among them a possible initial public offering (IPO) for the life insurance division and an increased thrust in its newer businesses of merchant banking, private equity and institutional brokerage.
If the IPO comes through, it will be the first in the country for an insurance company.
Ambani was addressing the annual general meeting (AGM) of R-Cap in Mumbai, which, through a network of subsidiaries, has interests in mutual funds, retail broking, consumer finance, and life and general insurance.
“In the next 12 months, we plan to take our first steps in... investment banking,” Ambani told shareholders, adding that he was looking to leverage “the scale and magnitude of our (group’s) relationships across corporate India” in this segment.
R-Cap’s stock on Tuesday closed 1.65% lower at Rs869.30 a share on the Bombay Stock Exchange, while the bellwether index, the Sensex, fell 0.85% to 15,062.40 points.
The firm posted revenues of Rs5,976 crore for the financial year ended 31 March, an increase of 22% from the year before, and an increase of 1% in net profit to Rs1,016 crore.
A Mumbai-based sector analyst with a foreign brokerage and research firm said: “R-Cap’s gameplan is to become a full-service financial services company and all these initiatives are towards that end. However, the institutional broking and merchant banking segments are pretty crowded and may not form a significant portion of the revenues initially.” The analyst declined to be named.
Calling the life insurance business “a potential gold mine” for investors, Ambani said the company was “considering various options to unlock this value—from a potential IPO to a financial stake sale or even a combination of both—subject to necessary approvals.”
A final call on the equity dilution will be taken shortly, he said.
The life insurance business closed the year ended 31 March with new-business premium worth Rs3,500 crore, an increase of 28% from the previous year. A report from PTI news service quoted R-Cap chief executive Sam Ghosh as saying in May that up to 26% stake could be divested in the insurance subsidiary.
R-Cap will also be “adding strength and muscle” to two new business areas that were launched last year, Ambani said.
Domestic fund-raising for the first private equity fund of Reliance Equity Advisors Ltd, with special focus on high net-worth individuals and financial institutions, has started operations.
According to a group executive familiar with the matter, the fund wants to mop up Rs2,000 crore. The money will be invested in buyouts, minority investment as well as acquisition financing of companies across media, retailing, clinical research, healthcare and logistics, the official said on condition of anonymity.
The company is also looking to enter the institutional broking business through its wholly owned subsidiary Reliance Equities International Pvt. Ltd that started operating in 2008 and has set up at least 50 accounts with foreign institutional investors and around 500 sub-accounts, Ambani said. Revenue from this fledgling business was not disclosed.
The only business segment R-Cap does not have a presence in is banking. In an echo of last year’s AGM, Ambani clarified that the group will look to owning a bank as soon as the country’s regulations allow private entities to do so.
In September last year, Reliance Money Ltd received its merchant-banking licence and was looking at fund-raising deals for the smaller group companies. This role is now expected to be expanded substantially, with the deal-making graduating to bigger companies and larger amounts.
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First Published: Tue, Jul 21 2009. 10 38 PM IST