Mumbai: Lotus India Asset Management Co. Pvt. Ltd may become the first casualty of the liquidity crisis that has hit most asset management companies in India with discussions regarding its sale to a rival continuing late on Monday night.
Promoted by a subsidiary of Temasek Holdings Pte Ltd, the Singapore government’s investment arm, and Sabre Capital Worldwide, a company promoted by former Standard Chartered Bank Plc. chief executive officer Rana Talwar, Lotus India Asset Management is being sold to Religare Aegon Asset Management Co. Pvt. Ltd, said four people familiar with the development who did not want to be named.
All four labelled it a distress sale and said the fund would not fetch a good price. Under normal circumstances, promoters of asset management companies are paid 6% for equity assets under management and 3% for debt assets.
In the face of heavy redemptions, Lotus India has seen a 31% fall in the average assets under management—from Rs7,937 crore at the end of September to Rs5,457.7 crore in October.
Saurabh Nanavati, chief executive officer of Religare Aegon, which is yet to launch its first scheme, declined comment “at this stage”.
Rajiv Maliwal, co-founder and managing director of Sabre Capital Worldwide Group, a financial services firm, responded to a call on Monday evening and said he could talk after an hour or so but subsequently did not respond to calls.
Ajay Bagga, chief executive officer of Lotus India, did not respond to calls.
One of the four people, the chief executive officer of a rival asset management company, said negotiations were on and that a deal could be struck late Monday night or Tuesday.
He added that this was only the beginning and that a few more asset management companies could share Lotus’ fate.
In the first fortnight of October alone, Indian asset management firms saw redemptions worth at least Rs30,000 crore from their liquid and liquid-plus funds.
Lotus India was managing Rs1,678.5 crore in 30 liquid and liquid-plus funds at the end of October.
This category of funds, also called money market funds, are essentially investment vehicles that banks and corporate treasuries use to park their surplus cash.
They have the option to withdraw from these schemes on a daily basis.
Lotus India managed Rs1,319 crore in 84 fixed maturity plans (FMPs) at the end of October.
FMP portfolios of fund houses have been severely affected because of their heavy exposure to debt instruments issued by non-banking finance companies and real estate companies, investments that have now turned sour.
In effect, a total of Rs2,997.6 crore, or nearly 55% of Lotus India’s average assets under management, for October were in these two categories of funds.
“FMPs per se is not a problem but it is the quality of assets that is important. Some of the mutual funds will face problem on this count,” said an analyst who did not want to be named.
Some recent acquisitions in the asset management space include Infrastructure Development Finance Co. Ltd’s purchase of Standard Chartered Asset Management Co. Pvt. Ltd, and Netherlands based asset manager Robeco’s acquisition of a 49% stake in Canbank Investment Management Services Ltd.
These stakes were bought in 2008 for a consideration that was 5.67% and 10.7%, respectively, of the concerned asset management firm’s assets under management.
Another of the four people familiar with the situation said that the top management at Lotus India is unlikely to be retained by Religare Aegon, but that some of them had negotiated good exit packages for themselves.
Lotus India was beset by problems even before its first fund was launched.
In the early 2000s, it asked its then chief investment officer (equity), Sandip Sabharwal, to leave for his alleged involvement in dealing in stocks whose prices had been allegedly manipulated by stock trader Ketan Parekh.
Sabharwal subsequently joined JM Financial Asset Management Pvt. Ltd as its CIO (equity). The allegation against him has not been proved.
Lotus India’s chief investment officer (fixed income), Nandkumar Surti, quit soon after Sabharwal did.
He subsequently joined as chief investment officer (fixed income) at JPMorgan Asset Management India Pvt. Ltd.