Mumbai: Financier Infrastructure Development Finance Co. Ltd (IDFC) has agreed to buy Standard Chartered Plc.’s asset management business in India for $204 million, or Rs826 crore, making a foray in this segment.
The acquisition of Standard Chartered Asset Management Co. Pvt. Ltd, however, comes with a high price tag.
The UK-based bank sold the business at 6% of its assets, based on an asset size of Rs14,141 crore as on 19 February. In comparison, Standard Chartered had agreed to sell its asset management unit to UBS AG in January 2007 for Rs467 crore, or at 4% of its total assets of Rs12,635 crore as on 31 December 2006.
That deal was, however, called off in December as UBS couldn’t get necessary approvals in time from the Reserve Bank of India.
Admittedly, stock market valuations have soared since then and the asset base of mutual funds has gone up substantially. Total assets managed by the industry have risen from Rs3.37 trillion in December 2006 to Rs5.65 trillion as on 29 February.
For IDFC, with operations in project financing and private equity space, this is the second major acquisition over the past year. In June 2007, IDFC increased its stake in institutional brokerage SSKI Securities Pvt. Ltd to 66.67% from 33.33%, aiming to boost its fee income. IDFC was also reported to have been in merger talks with Centurion Bank of Punjab Ltd (CBoP). Eventually, HDFC Bank Ltd agreed to buy CBoP in February.
“IDFC has been planning to diversify the fee-based income from various sources. The acquisition of Standard Chartered AMC (asset management company) will help it boost its fee income. Also, it gives them a headway in the retail financial market space,” said Shriram Iyer, head of research at Edelweiss Securities Ltd.
With the latest purchase, IDFC will become the 14th largest AMC among the country’s 32 players.
The deal between IDFC and Standard Chartered is subject to regulatory approvals. It does not include the transfer of the company’s mutual fund distribution business, according to a statement from Standard Chartered.
IDFC’s earnings are expected to increase by 16% in the next financial year, according to a 15 January research report by Motilal Oswal Securities Ltd.
IDFC shares fell 6.32% to Rs169 on the Bombay Stock Exchange on Friday, even as the benchmark 30-stock Sensex fell 3.42%.
There has been a huge interest among international players to get into the asset management business.