Mumbai: Mukesh Ambani, who controls India’s most valuable company Reliance Industries Ltd (RIL), is in talks to buy a majority stake in JM Financial Asset Management Pvt. Ltd, his first attempt to enter Anil Ambani’s territory since the estranged brothers scrapped a “non-compete” agreement between them a week ago.
Negotiations are under way for a deal that values JM Financial Asset Management, the money manager controlled by investment banker Nimesh Kampani, at around 8% of its assets under management, which equals Rs685 crore, said two officials close to the development who didn’t want to be named.
If the acquisition goes through at that valuation, it would be one of the biggest in India’s mutual fund industry.
JM Financial manages assets worth Rs8,569 crore in a total of 27 investment plans.
The non-compete agreement, which was torn up in a move towards possible reconciliation between the brothers, had prevented Mukesh and Anil Ambani from entering each other’s businesses.
Anil Ambani controls Reliance Capital Asset Management Ltd, the country’s largest money manager.
The acquisition of JM Financial will give Mukesh Ambani, 53, a direct licence to enter the mutual fund industry, which has Rs7.7 trillion worth of assets under management.
“As a policy, we do not comment on speculation,” a spokesperson at Reliance Industries said in response to a query from Mint.
Nimesh Kampani’s son Vishal Kampani also termed it “speculation”.
“JM Financial mutual fund forms an important part in the JM Financial group portfolio and we remain focused and committed towards growing this business,” he said over the phone.
Vishal Kampani, who was holding the position of a director in the asset management firm, resigned from his position on 12 March. On 14 March, the fund house informed investors of his resignation.
Bhanu Katoch, chief executive officer of JM Financial Asset Management, also called news of the attempted acquisition speculative in reply to an email from Mint.
JM Financial mutual fund, a part of the Nimesh Kampani-controlled JM Financial group, is one of the country’s first asset managers.
It started operations in December 1994 with the launch of three funds—JM Liquid Fund (now JM Income Fund), JM Equity Fund and JM Balanced Fund.
The non-compete agreement between the Mukesh Ambani company and Reliance Anil Dhirubhai Ambani Group (R-Adag) had restrained the elder brother from venturing into the potentially lucrative financial services space.
Reliance Capital, a part of R-Adag, is engaged in asset management, life and general insurance, consumer finance and other capital market-related businesses.
Reliance Capital Asset Management is the largest mutual fund in the country with assets worth Rs1.11 trillion.
The talks with Mukesh Ambani follow three years after Nimesh Kampani sold his 49% stake in the joint venture investment banking company JM Morgan Stanley Securities Pvt. Ltd to Morgan Stanley for $445 million (Rs2,069.25 crore as of today). “If a partner does not want to be with you, one has to move on,” Nimesh Kampani said then.
JM Financial Asset Management is a loss-making entity in the otherwise profitable JM Financial group. Last year, the money manager made a loss of Rs5 crore.
Under its star fund manager Sandip Sabharwal, JM Financial Asset Management made most of its investments when the stock market was nearing its peak.
Sabharwal, who was known for his aggressive style of investment, has since left the fund.
JM Financial has been on the lookout for a buyer for a couple of months now, said one of the two officials mentioned above.
JM Financial would help its new owner get a decent headstart in the mutual fund business, given that it has a near-full suite of products besides a licence, althoughit hasn’t invested much inexpanding outside the top eight cities, the person said.
People familiar with the situation said JM Financial had earlier talked with the Indiabulls group, which has an asset management licence but has not commenced business for over a year.
But Gagan Banga, chief executive officer of India-bulls, denied they had been in talks.
“We are assessing the regulatory changes and its impact on the industry. We would wait for things to settle down before taking a call on this,” he said.
Valuations typically depend on the portfolio of products held by the asset manager. The higher the equity assets, higher would be the valuation, because companies earn more commission income from the sales and management of equity funds compared with debt funds.
Traditionally, such deals have been struck at 3-4% of the assets under management.
In January, US-based asset management firm T. Rowe Price Global Investment Services Ltd bought a 26% stake in UTI Asset Management Co. Pvt. Ltd for $140 million, around 3.25% of its average assets under management.
Valuation of asset managers plunged after the market decline of 2008.
In July 2009, Nomura Asset Management Co. Ltd bought a 35% stake in LIC Mutual Fund Asset Management Co. Ltd at 2.4% of its total assets.
In September, the financial services unit of engineering firm Larsen and Toubro Ltd announced plans to buy DBS Cholamandalam Asset Management Ltd for Rs45 crore, valuing the firm at about 1.6% of assets under management.
Following the market plunge in 2008, the assets under management of JM Financial had dipped to Rs3,758 crore in March 2009, of which Rs1,480 crore was in equity, before increasing last year when the market recovered.
Satish John contributed to this story.